Understanding Harmonized System (HS) Codes in Nepali Tax Invoices: A Guide for Taxpayers

The Government of Nepal, Ministry of Finance, and the Inland Revenue Department (IRD) have introduced specific requirements regarding the use of HS Codes in tax invoices. If you are a business owner registered under Value Added Tax (VAT), it is crucial to understand how these updates impact your daily operations and billing processes.

Here is a breakdown of the most frequently asked questions regarding the implementation of HS codes in tax invoices based on the latest guidelines from the Taxpayer Service Branch, Lazimpat.

Who Needs to Use HS Codes?

According to the Value Added Tax Rules (26th Amendment), 2053, all taxpayers registered for VAT must use the tax invoice formats specified in Schedules 5, 5(B), and 6.

Specifically, the mandate for HS codes applies as follows:

• Mandatory for Importers: All taxpayers involved in the business of imported goods must include the HS code in their invoices.
• Existing Stock: If you are selling imported goods that were purchased before these new formatting rules were implemented, you must still include the HS code when selling that stock.
• VAT-Exempt Goods: Even if the imported goods are exempt from VAT, the HS code must be mentioned on the invoice.
• Domestic Products: For goods manufactured within Nepal, including the HS code is optional. Taxpayers may include it if they wish, but it is not legally required.

Formatting and Compliance

When updating your billing system, keep these technical requirements in mind:

• Digit Requirements: For imported goods, you must mention at least the first four digits of the HS code. However, taxpayers have the flexibility to include the full HS code if they prefer.
• Computerized Billing Permissions: If you already use billing software and are only updating it to include an HS code field (without changing the software version or core functionality), you do not need to seek new permission from the tax office.