What is this about?
Kathmandu Metropolitan City (KMC) has issued an important update regarding the collection of house rent tax, particularly affecting businesses and institutions operating within the city.
Background
Under the Constitution of Nepal and the Local Government Operation Act, 2074, the authority to collect house rent tax legally belongs to local governments such as KMC. However, in practice, the Inland Revenue Office (IRO) under the Ministry of Finance had been collecting institutional house rent tax since a Cabinet decision in 2074.
This arrangement was challenged in the Supreme Court, which ruled in 2082 that local levels should not be obstructed from collecting this tax themselves. Following that ruling, KMC had begun moving toward collecting the tax directly.
Current Situation: Court Interim Order
The Supreme Court's Constitutional Bench has now issued an interim order in a new case (No. 082-WC-0007), temporarily suspending the relevant provisions of KMC's Finance Act, 2082 that authorised it to collect institutional house rent tax. This means KMC cannot enforce collection of this tax until the case reaches a final decision.
For detail understanding of previous court cases regarding House Rent TDS, you may refer to https://www.caroshanpoudel.com.np/blogs/tds-on-house-rent-and-office-rent-jurisdiction-inland-revenue-office-or-local-government
What This Means for Businesses
During this period:
Payment of institutional house rent tax to the Inland Revenue Office remains acceptable on a voluntary basis.
Businesses can continue to register and renew their registrations using receipts of house rent tax paid to the IRO.
No penalties or enforcement actions will be taken by KMC regarding this tax while the court case is pending.
What Happens Next
KMC will issue further guidance once the Supreme Court delivers its final ruling. Businesses are advised to retain all tax payment receipts in the meantime.
This summary is based on the official notice attached below issued by the Revenue Department of Kathmandu Metropolitan City, signed by Departmental Head Deepak Adhikari, dated 2083/02/20.
