While taxpayers’ claims for tax refunds have been steadily increasing every year, the amount actually refunded has not seen proportional growth. The delay in processing refund-related files has emerged as a key obstacle, despite the rising number of claims.
Generally, tax refunds are issued after verifying taxes paid in excess of what is owed. Eligible individuals and organisations, as defined by laws and regulations, are allowed to submit refund claims to the Inland Revenue Department and its subordinate offices.
Diplomatic missions and entities exempted from taxes by various laws, including individuals and organisations purchasing goods and services with upfront tax payments, are entitled to refunds as per legal provisions. Every year, substantial refund claims are submitted to the government; however, the actual disbursements remain significantly lower.
For example, in the fiscal year 2023/24, refund claims amounted to Rs 18.58 billion. Out of this, only Rs 4.73 billion was approved for refund. The preceding fiscal year, 2022/23, saw an even larger claim of Rs 19.01 billion, with approvals amounting to merely Rs 4.58 billion.
Officials from the Inland Revenue Department cite several reasons for the disparity between claims and approvals, including delays in decision-making, incomplete submissions of required documents by taxpayers, and non-compliance with procedures.
“Many taxpayers fail to comply with the procedures, causing delays in decisions,” an official from the department’s Tax Refund Section told NBA.
The official emphasised the importance of submitting accurate and complete information, including bank details and supporting documents, within the prescribed time frame.
While taxpayers are required to provide clear reasons for their claims, failure to do so often results in rejections or delays. However, if all processes are followed and refunds are still not issued, taxpayers retain the option to seek legal recourse.
Some tax officials argue that the process of income tax refunds remains cumbersome, contributing to delays. Efforts to streamline the process have reportedly been made, but little progress has been achieved. Moreover, the High-Level Tax System Review Commission has previously highlighted the complexities of Nepal’s tax refund system, recommending reforms, which have yet to be implemented.
Former Finance Secretary Krishna Hari Baskota stressed that the government must not withhold refunds mandated by law. “If the process is complex, it needs to be simplified,” he stated, adding that recommendations from commissions should be implemented effectively.
The issue underscores a pressing need for systemic improvements to ensure timely and fair processing of tax refunds.
