Import tariffs are generally assessed on an ad valorem basis. Nepal uses the Harmonized Tariff System (HTS) for classification purposes. Import duty rates vary from zero to 80 percent. There is a two-tier tariff rate system for most imported items - one for imports from South Asian Association for Regional Cooperation (SAARC) nations, which is usually lower than for imports from all other non-SAARC countries. Machinery or goods related to basic needs or agricultural production are charged at a five percent rate, or lower in some cases. Products considered hazardous to one’s health, such as cigarettes, are taxed at Nepali Rupees 4,500 (approximately USD 37) per thousand pieces. Liquor is taxed at Nepali Rupees 1,200 (approximately USD $10) per liter. Custom duties are generally assessed on the cost, insurance, and freight (CIF) value. Imported goods are also liable for a value-added Tax (VAT) of 13 percent levied on CIF plus customs duty value. Changes in import tariffs, other duties, and taxes are generally announced through the annual budget, and later ratified by the Parliament before enforcement. The annual budget for FY 2021/22 was released on May 29, 2021. This year’s budget reduces the tariff and VAT on medical equipment required for countering COVID. Interested parties are advised to consult the Department of Customs website for the updated tariff schedule. Special Duty Reductions of five or ten percent have been given to imports from the Tibet Autonomous Region of the People’s Republic of China, SAARC member countries, and designated most-favored nations.
Certain blocks of Nepal’s first Export Processing Zone (EPZ) in Simara, near the Nepal-India border town of Birgunj, have now been completed and opened to exporters. This EPZ is meant to provide a special facility for the manufacture and export of garments in particular. Any industry exporting 90 percent or more of its products is entitled to privileges equivalent to those normally provided by an EPZ – e.g., no tax, duty, or fee is levied on the machinery, tools, and raw materials used by the industry in manufacturing the exported products. Export-oriented industries may also enjoy the benefits of bonded warehouse facilities. Raw materials can be imported via entry in a passbook without paying custom duty or VAT. The same value is deducted from the passbook upon export of the finished product. The enterprise must also submit a bank guarantee sufficient to cover applicable duties. However, the EPZ has received a tepid response from industrialists on the basis that the export requirement (90%) and rent is too high.