KATHMANDU, Aug 15: The government has made profit earned by firms and non-government organizations by selling land and buildings taxable income, requiring them to pay 10 percent as advance tax while transferring ownership.

The government decided to levy tax on such income after finding that huge income of business firms and NGOs was still outside tax net. Now onwards, business firms, companies, NGOs, trusts, private schools, and universities will have to pay 25 percent income tax (including 10 percent advance CGT) while submitting their financial reports.

"This new policy has not only brought such transactions into tax net but also enforced the existing provisions which say that NGOs will also have to pay income tax on such profit," Naranath Giri, director of Inland Revenue Department (IRD) told Republica.

NGOs, so far, have been showing their tax exemption certificates to get tax clearance letter. Their profit, if any, earned by selling land and buildings was not monitored before. 

NGOs enjoy tax exemption on income from donations, gifts and grants.

Explaining the notice published by IRD three weeks ago, Giri said: "As per the new provision, NGOs will also have to renew their tax exemption certificates. They will no longer enjoy tax waiver on such profits."

CGT was introduced in the financial bill for the Fiscal Year 2016/17. A notice published by IRD on July 24 has clarified the provision, saying that the provision is not applicable for registered firms involved in real estate business. This means firms selling developed land and building or housing units are not required to pay this advance CGT. They, however, have to pay income tax as per law.

Advance tax on such profit, according to IRD officials, is also meaningful as Land Registration Offices will routinely inform IRD about such revenue from profits and related details, making NGOs declare their income prior to receiving tax clearance certificates.

The government has also barred business firms and NGOs from adding such profit into their overall income and expenditure details. This means they will have to pay tax on such profit separately.

CGT is applicable on transactions above Rs 3 million. Individuals and firms selling land and building worth more than Rs 3 million will have to pay 5 percent CGT if the property was purchased within five years. They will have to pay 2.5 percent CGT if the property was purchased more than five years ago.

 
• non-government organizations
 
• inland revenue department
 
• taxable income from land and buildings