VAT on medicines in Nepal: what is exempt, and when a pharmacy must register

Is there VAT on medicines in Nepal?

No. Under section 5(3) of the VAT Act, no VAT is charged on goods and services listed in Schedule 1, whose Group 5, 'medicine, treatment and similar health services', covers medicines. A pharmacy charges no VAT on an exempt medicine, registered or not.

Under HS headings 30.03 and 30.04, Group 5 lists antibiotics, insulin, hormones, antimalarials, vitamins in medicine form (3004.50, exempt since FY 2082/83), homeopathic, pure ayurvedic and unani medicines, some named ayurvedic preparations, and an 'other' line that can cover unnamed medicines. A product is exempt only if its 8-digit subheading and description both match (note 1 to Schedule 1).

Finance Act 2083 replaced Schedule 1 from 30 Asar 2083 (mid-July 2026), keeping every medicine line; the government can also amend it by Gazette notice (section 42), so check the date on any list.

Exempt is not zero-rated: VAT paid on purchases for Schedule 1 goods cannot be deducted or reclaimed (section 5(3)), and only Schedule 2 supplies are zero-rated.

Which other health items are VAT-exempt in Nepal?

Group 5 (FY 2083/84) also exempts these, in the named subheadings only; items marked new date from 30 Asar 2083.

• Vaccines, antisera and blood products
• Gauze, adhesive plasters, surgical tape and medicated cotton, and a bandage line (new)
• Hormonal or spermicide contraceptives, and condoms
• Diagnostic reagents and test kits
• Oxygen and dialysis concentrate
• Wheelchairs and parts, white canes, and commode chairs and walkers for persons with disabilities
• Hearing aids (since FY 2082/83), pacemakers, crutches, heart valves and stents
• Doctor-prescribed spectacles, not sunglasses (new), and health services

Not listed, so taxable: first-aid kits (3006.50) and orthopaedic appliances (9021.10).

Which pharmacy items carry 13% VAT?

Everything Schedule 1 does not expressly list, as IRD's FAQ confirms. A VAT-registered pharmacy charges the standard 13% (section 7(1)) on all of it, so a taxable cream priced at Rs 100 before VAT is billed at Rs 113.

Grey zone: ayurvedic tonics and balms

Chyawanprash, Dashamularishta, Ashokarishta, Kalpasundari and similar products (3003.90.49, 3004.90.49) and menthol or camphor balms (3003.90.50, 3004.90.50) have tariff lines Schedule 1 does not list, and Finance Act 2082 removed those three arishtas from the exempt ayurvedic line, so they may be taxable at 13%. That is our reading, not an IRD ruling: check the HS code on the supplier's bill or ask your Inland Revenue Office.

Does a pharmacy have to register for VAT?

Not automatically. Since Finance Act 2078 the VAT Act has had no list of trades that must register whatever their turnover, and medicine shops were never on the old lists.

Rule 6(1) of the VAT Rules, as amended to Jestha 2083, still sets these limits; the Rs 20 lakh shown on IRD's FAQ page for services is out of date. The rule also requires a shop below the limit to display a notice that it need not register, and a pharmacy importing over Rs 10,000 of taxable goods at a time, except for its own use, to register whatever its turnover.

Do medicine sales count toward the limit?

No text settles this for a shop selling both exempt and taxable goods. The Act (sections 9 and 11) and IRD's FAQ speak of taxable turnover, but rule 6(1) says only 'turnover', and rule 6 lets the officer treat inseparable purchases, sales and stock as one turnover. Keep exempt and taxable sales, purchases and stock separate, and confirm with your Inland Revenue Office.

What is the VAT registration process for a pharmacy?

1. Add up your taxable and exempt sales for the last 12 months separately; rule 8 of the VAT Rules counts purchases or sales, whichever is higher.
2. Ask your Inland Revenue Office whether exempt sales count, and about the current form, documents, any fee and online applications.
3. Apply to the tax officer in the prescribed form as soon as you foresee crossing the limit (rule 7), and no later than 30 days after crossing it or starting a taxable business (section 10(2)).

What must a VAT-registered pharmacy do about bills, VAT returns and records?

• Give an invoice for every sale except as prescribed (section 14(1)), with 13% only on taxable lines; IRD's notice of 26 Asar 2083 says officers are checking markets for unbilled sales.
• Use a tax invoice: under rule 17 of the VAT Rules, as amended to Jestha 2083, it says 'tax invoice', is made in three copies and shows each item's kind, size, model and brand where applicable, plus, for imported goods, at least a four-digit HS code. A retailer may, with its Inland Revenue Office's permission, give an abbreviated one, which carries no input credit, for a sale up to Rs 10,000 (rule 18), unless the buyer asks for a full one.
• File a VAT return for each Nepali month within 25 days of its end, even with no taxable sales, and pay by then (sections 18 and 19); since 30 Asar 2083 an on-time return can be corrected within 7 days of filing. Under rule 26 of the same Rules, IRD may, on request, allow four-monthly returns for a taxpayer with annual turnover up to Rs 1 crore.
• Deduct VAT paid on purchases for taxable sales, and only the taxable share for mixed use (section 17), plus, as prescribed, VAT on goods that expired or were lost to fire, theft, accident, breakage or, since 30 Asar 2083, natural disaster. Each claim needs the supplier's proper tax invoice.
• Keep a self-certified purchase and sales book for each fiscal year (section 16), as any seller of taxable goods must, registered or not. Display the certificate (certified copies at other outlets) and a tax board in IRD's format, report changes within 15 days, have branches and godowns certified and, under the VAT Rules, show VAT-inclusive tag and shelf prices.

How much income tax does a small pharmacy pay?

In FY 2083/84 a resident sole owner whose only income is a Nepal business may elect, instead of tax on profit, a flat tax of Rs 2,500 to Rs 7,500 a year or, above Rs 30 lakh turnover, a turnover-based tax (limits below).

Since FY 2082/83 the regime must be elected each income year; VAT registration has not ruled it out since FY 2078/79. A pharmacy run as a company pays 25% of its taxable income (FY 2083/84).

Every pharmacy owner needs a PAN; our guide How to open a pharmacy in Nepal explains how to get one.

Please note: This guide is general information for pharmacies in Nepal, written from the laws and official notices listed under Sources as they stood on the review date. It is not legal or tax advice. Rules, fees and forms change, so confirm with the office concerned or a qualified adviser before you act.