Compliance and Financial Management Workshop

27-28 December 2023

PKF T R Upadhya & Co.

Strictly Private and Confidential

Table of Contents
Contents Session
Day 1
Taxation
- Current changes through budget Session 1
- Remuneration Tax Session 2
- Withholding Tax Session 3
Financial Management and Control
- Major Audit Observations
 Budgetary Management
Session 4
 Cash and Bank Management
 Disbursements
 Advances
Day 2
Financial Management and Control
- Procurement Best Practices Session 1
- Property & Inventory Management Session 2
- Common Cost Sharing
Compliance with Social Security Laws & Labor Laws Session 3
NAS for NPOs Session 4

2
 Relevant Amendments in Tax
by Finance Ordinance, 2080

TAXATION 3
Amendments in Income Tax Act
Change in tax slab rate for remuneration income exceeding Rs 5,000,000 for resident natural
person. (Annexure 1 (1) of Income Tax Act)

Slab - FY 2079/80 New Slab - FY 2080/81

Slab Couple Not Tax Rate Slab Couple Not Tax Rate
Couple Couple
1st 600,000 500,000 1% or 0% 1st 600,000 500,000 1% or 0%
2nd 200,000 200,000 10% 2nd 200,000 200,000 10%
3rd 300,000 300,000 20% 3rd 300,000 300,000 20%
4th 900,000 1,000,000 30% 4th 900,000 1,000,000 30%
5th Above 20 Lakhs 36% 5th 3,000,000 3,000,000 36%
6th Above 50 Lakhs 39%

TAXATION 4
Amendments in Income Tax (IT) Act
New provision for Method of Tax Accounting for Employment Income (Section 22 (2) of IT Act)

If a natural person receives a lump sum payment for past years due to employment after a court case has been
settled, accounting for tax purposes shall be done on an accrual basis in the relevant income year and not on
cash basis.

TDS rate for Transportation Service (Section 88 (1) (8) of IT Act)

Existing Provision:
Payment of Transportation / Carriage Services or Rent on Transportation / Carriage Services Vehicle = 2.5%

New Provision:
Payment of Transportation /Carriage Services or Rent on Transportation / Carriage Services Vehicle = 2.5%
Payment of Transportation / Carriage Services or Rent on Transportation / Carriage Services Vehicle to VAT
Registered Person = 1.5%

TAXATION 5
Amendments in VAT Act
Reverse VAT transportation and Carriage Service (Section 8(2Ka) of VAT Act)
Regardless of whether a person is registered under the VAT Act or not, if they hire or receive carriage/transport services
from an unregistered person, they are required to assess and collect tax on the taxable value as per the provisions of
this act and the rules established under it. This should be done at the time of payment or receipt of the service,
whichever occurs earlier. <Reverse VAT Deposit Revenue Code - 33317>

Fine on claim of ineligible VAT Refund (Section 29 (1Nga) of VAT Act)

If a person obtains an ineligible refund of VAT under the diplomatic VAT refund outlined in Section 25(1) (Ka),
(Ka1), and (Ka2) through an automated electronic medium, a penalty of 25% on the taxable amount can be
imposed by the tax officer.

Waiver to on-going VAT cases to NGOs (Section 35 of Finance Ordinance, 2080)

Non-governmental organizations registered under the Organization Registration Act, 2034, that have received grants
or donations from donor agencies or international non-governmental organizations, will be eligible for a waiver of the
assessed value-added tax, additional charges, interest, and fines. To avail this waiver, the NGOs must file an
application to the relevant Internal Revenue Office by Mangsir end, 2080, in cases where payment is due after tax
assessment or the case is pending under administrative review or revenue tribunal after the cases are withdrawn at
the respective levels.
TAXATION 6
Amendments in VAT Act
Major Changes in VAT Schedule 1

The Finance Bill 2080 has introduced significant changes in Schedule 1 of the VAT Act 2052 removing
more than 150 items <16 page details available at IRD site> (goods and services) from the schedule
and now VAT shall be attracted to such items. Some of item for which VAT will be attracted now
onwards are:

- Air Travel Service, Hire Charges on Transportation Services, Carriage Service and Local Cargo
Service.
- Trekking and tour package related service
- Decorative flowers
- Potatoes, onions, Apple (other than domestically productive as per IRD notice issued 2080/8/22)
- Peas, few other vegetables and beans, Apricot, Cherries, few other fruits
- Coffee, Maida (other than wheat, melsin)
- Kerosene
- Meat of goats, fish, few other meat products

TAXATION 7
New Fees under Finance Ordinance
Luxury Fee (Section 21 of Finance Ordinance, 2080)

Luxury fee shall be levied at the rate of 2% on purchase amount for Services provided by five star and above
hotels and luxury Resorts (on availing of service)

Foreign Tourism Fees (Section 22 of Finance Ordinance, 2080)

Foreign Tourism Fees shall be levied at the rate of 5% on the payment made by Nepali Tourist going abroad.
Such fee shall be collected by Foreign Tour Package Seller at the time of sale of the package and firm or
company at the time of booking of travel expense incurred for taking related person on foreign tour for
business promotion.

Payment process and fines for non-payment of above fees

To be paid within 25th of next month along with necessary details.
Delayed payment will result in interest of 15% p.a.
Fee of 2.5% p.a. from the due date for not submitting or delayed submission of details.
Fine of 25% shall be levied on non collection of such fee.

TAXATION 8
Session Break
 Current Rules and Regulations under Tax
 Income from Employment (Salary Tax Calculation)
 Withholding Taxes
 Withholding Tax Payment and Filing
 Tax challenges for Not-for-Profit Organizations

TAXATION 10
Income from Employment
As per Section 8 of the Income Tax Act, 2002, remuneration received from the exercise of
employment in any income year shall be considered as income from employment.
Inclusions - Sec 8(2)
a. Wages, salary, leave pay, overtime pay, fees, commission, prizes, gifts, bonuses and other
facilities;
b. Personal allowances including the cost of living, rent, entertainment and transport allowance;
c. Reimbursement of costs incurred for personal purposes;
d. Payment for the agreement to any conditions of employment;
e. Payments for redundancy or loss or termination from employment;
f. Retirement payment and retirement contributions;
g. Quantification of benefits, vehicle facility (0.5% of basic salary) & accommodation facility (2%
of basic salary), subsidized loan facility.
h. Other payments and benefits made in respect of the employment.

TAXATION 11
Income from Employment (contd.)

Amounts not to be included – Sec 8(3)

a. Amounts exempt u/s 10
b. Final withholding payments u/s 92
c. Meals or refreshments provided to all the employees under similar terms
d. Any reimbursement fulfilling the employer’s business purpose (e.g. TADA)
e. Any reimbursement that are so small that it is administratively cumbersome to maintain the
details, i.e. up to Rs 500 incurred for tea expenses, stationery expense, prizes, gifts,
emergency medical expense, or other such payments as specified by IRD.

TAXATION 12
Income from Employment (contd.)
Deductions
a. Contribution to Approved Retirement Fund: Actual amount
deposited

Registered and Deduction of

Contributed whichever is Rs 500,000
under SSF lower

1/3rd of
assessable
Income

b. Remote Area Allowance Deduction: up to Rs 50,000 as per remote area specified by GoN
c. Investment Insurance Premium: Premium paid or Rs 40,000 whichever is lower
d. Medical Insurance Premium: Premium paid or Rs 20,000 whichever is lower
e. Housing Insurance Premium: Premium paid or Rs 5,000 whichever is lower

Woman Tax rebate

If a resident employee is female, 10% shall be exempt on the tax amount.

TAXATION 13
Income from Employment (contd.)
Tax Rates
1. Regular Remuneration
a. Non- Resident: 25%
b. Resident
Slab Couple Not Couple Tax Rate
1st 600,000 500,000 1% or 0%
2nd 200,000 200,000 10%
3rd 300,000 300,000 20%
4th 900,000 1,000,000 30%
5th 3,000,000 3,000,000 36%
6th Above 50 Lakhs 39%

2. Non-Contributory Retirement Payments – Like Leave Encashment paid at the end of the service:
15% (final withholding tax).
3. Contributory Retirement Payments from approved retirement fund - 5% of amount above NPR 5 lakhs or
50% whichever is higher. (this is withheld by retirement fund)
TAXATION 14
Salary tax calculation for the period July 2023 to June 2024- Registered under SSF
Particulars Employee (A) Employee (B)
Single (Female) Couple (Male)
Amount (per annum) Amount (per annum)
Basic salary (A) 1,800,000 960,000
Allowances (Including Dashain) (B) 330,000 176,000
*Tax after 10%
Employer Contribution-20% of woman rebate
360,000 192,000
Basic salary (C)
Gross salary (D)= A+B+C 2,490,000 1,328,000
Retirement
Employment Contribution – 31% of Contribution
558,000 297,600
basic salary (E) Deduction: Lowest
Insurance Premium (F) 40,000 27,500 of following
1. 1/3 of gross salary
CIT deposited (G) - 145,000
2. NPR 500,000
Deduction claimed (H) 540,000 470,100 3. Actual Contribution
Adjusted Taxable salary (I)= D-H 1,950,000 857,900
Total tax (J) *328,500 31,580
Net Pay (K)= D-E-G-J 1,621,500 826,320

TAXATION 15
Salary tax calculation for the period July 2023 to June 2024- Registered under SSF
Employee (A) Employee (B)
Particulars Slab Rate Single (Female) Couple (Male)
Amount (per annum) Amount (per annum)
500,000 / 600,000 1% or 0% - -
200,000 / 200,000 10% 20,000 20,000
300,000 / 300,000 20% 60,000 11,580

1,000,000 / 900,000 30% 285,000

-
3,000,000 / 3,000,000 36% -
-
Exceeding 5,000,000 39% - -
Less: Female tax rebate 10% (36,500) -
Net tax payable 328,500 31,580

TAXATION 16
Session Break
Withholding Tax on Services/ Contractual Payments
VAT invoice/ Service not
attracting VAT
1.5% on the amount before
addition of VAT
Service provider resident
entity/individual
No VAT invoice (for service
attracting VAT)
WHT on Service 15%

TDS 15%
Import of service attracting VAT Reverse charge
VAT @ 13%

1.5%
WHT on contractual payments
exceeding Rs 50,000 Construction contract, supply of
labor and goods

TAXATION 18
Tax on Rent

 Vehicle / Equipment Hire

WHT 10%, if VAT invoice 1.5%

 Lease of carriage vehicle or for service related to carriage

WHT 2.5% and if VAT invoice 1.5%

 House Rent
 Payment of house rent to a natural person: 10% rent tax to be deposited at the local
authority (municipality, ward office)
 Payment of house rent to other than natural person: WHT 10% (to be deposited at
IRD)

TAXATION 19
Withholding Tax Payment and Filing
 Payment of TDS
Due Date: 25th of the following month (Nepali calendar) under appropriate revenue codes

 Filing and Verification of e-TDS return

Due date: 25th of the following month (Nepali calendar)
e-TDS filing and self verification through IRD web portal

 Interest and Fines on delay

Non-payment of TDS: 15%, Non-filing of return: 2.5%

 Employment Tax Calculations

 Previous employer salary and tax deduction details to be obtained for new recruits, tax to be
deducted including the salary from previous employment
 July-Jun Approach has also been accepted by IRD (But it is better to follow Shrawan-Ashad
Approach)

 Tax Return
D4 tax return required if annual income exceeds Rs 40 lakhs
TAXATION 20
Challenges of Taxation for I/NGOs in Nepal

 Inadequate knowledge among tax authorities about accounting and financial practices & policies of
NPOs.
 Less flexibility in accounting due to head office/donor accounting policy and system.
 Process of obtaining tax exemption certificate.
 Unavailability of PAN/VAT bills in remote project areas
 Timely deposit and filing of TDS in remote areas.
 Administrative procedure of tax return filing of NPOs
 Mismatch in tax return filing due to cash and accrual basis of accounting

TAXATION 21
Session Break
Financial Management and Control
Essentials of Financial Reporting
Common Audit Observations
• Budgetary Management
• Cash and Bank
• Advances
• Disbursements
• Procurement
• Fixed Assets and Inventory Management
Common cost allocation
FINANCIAL MANAGEMENT AND CONTROL 23
Essentials of Financial Reporting
 Follow the Generally Accepted Practices, applicable Nepal Accounting Standards and laws
prevailing in Nepal.
 Adequate and appropriate policies to be formulated and implemented regarding: financial
management, internal controls, procurement, human resources, others as specified by donor.
 For statutory reporting the accounting period corresponds with the FY of Nepal - Shrawan (mid
July) to Ashad (mid July). For donor reporting - period as per the donor agreement.
 All the transactions are to be coded properly in line with the funds with project manual.
 Book-keeping to be maintained in a licensed accounting software and regular data back up system.
 The accounts shall be closed every year after making the year end adjustments.
 Vigilant financial analysis of budget, liquidity position, donor dependency, direct vs indirect cost,
project unit costing.
 Accounting records and related supporting to be retained for at least six years or retain the
documents for longer period as per the donor requirement.

FINANCIAL MANAGEMENT AND CONTROL 24

Common Audit Observations – Budgetary Management
Improper classification of budget heads/ non-identification of budget heads

Inadequate market research for budgeting (inflation, market rates, past data)

External factors (festive season, rainy season) not considered for budgeting

Poor communication for budget preparation/ revision among various levels of staff, stakeholders

Inconsistency in physical and financial progress of activities

Variance reporting not prepared timely. Unusual (zero) variances not justified

No evidence for revision of budget

FINANCIAL MANAGEMENT AND CONTROL 25

Common Audit Observations - Cash and Bank Management
Cash Management Bank Management

• Petty cash used for transaction limit • Payments made through bearer cheques or
exceeding the policy staff/board member advance instead of account
payee cheque/ bank transfer.
• Petty cash used for unauthorized • Dedicated bank account not maintained as per
purposes donor requirement
• Reconciliation of petty cash books • Blank cheques signed.
inconsistent/ inadequate • Bank reconciliation statement not prepared
monthly & not approved.
• Inadequate monitoring/ verification • Stale cheques not reversed.
• Petty cash not maintained within the • Unusual/unreconciled items in BRS not properly
office premises/ lack of security identified
measures • Bank interest not utilized as per donor
agreement.
• Failure to replenish petty cash timely
• Dormant accounts not closed, if not required.
• Shortfall/excess petty cash on physical • Signatories not updated after change in
verification authorized personnel.
• Copy of cheque not maintained

FINANCIAL MANAGEMENT AND CONTROL 26

Common Audit Observations - Advances

Advance request not filled, Proper estimation of advance/ detail breakdown not documented

Delay in settlement of advance without proper justification, old outstanding advances

Unutilized advance not deposited timely/ not deposited in organization’s bank account

Reason for significant under/over utilization of advance not documented

Fresh advance disbursed before settlement of old advance

Program advances and personal/salary advances to a particular staff not accounted

separately

Advance not utilized for intended purpose

FINANCIAL MANAGEMENT AND CONTROL 27

Inadequate/Inappropriate Supporting Documents
 Estimate/ Loose bills, incorrect PAN invoice/ fake invoice
 Similar handwriting in invoices from different vendors
 Invoices not issued in the name of organization/project
 Arithmetic errors in the invoices
 Tampered/overwritten/photocopy documents
 Inconsistent sequence in the dates of documents
− Sequence of bills
− Event and travel dates
− PR, RFQ, Quotations, PO, GRN
− Voucher date
 Attendance sheet, participant list not maintained/ discrepancies in participant list and invoice
 Inconsistency in signatures of vendors/participants
 Field trip report/ Travel report not documented
 Receipt acknowledgement not obtained
 Contract with vendor not/inadequately prepared

FINANCIAL MANAGEMENT AND CONTROL 28

Common Audit Observations - Program and Administrative Expenses

Expenditure not incurred within the budget line/ not accounted under appropriate budget head

Expense not approved from appropriate authority, self approval, appropriate authority levels not
defined

Expenses incurred outside the project period, expenses not related to the project

‘PAID’ stamp not affixed in the invoices and vouchers

Common office costs/shared project costs not allocated on a scientific basis

Perdiem rates not as per policy

Transactions with conflict of interest (staff / board members)

FINANCIAL MANAGEMENT AND CONTROL 29

 Common Audit Observations- Payroll Disbursement

 Individual employee files not maintained – appointment letter, resume,

academic qualifications, citizenship/ID, PAN, other documents as per policy
 Attendance and leave records not maintained adequately
 Monthly timesheet not maintained by each staff, absence of review & approval
 If an employee is assigned to multiple projects:
 Multiple contracts maintained
Payroll
Disbursement  Hours/ time spent under each project not disclosed separately in timesheet
 Salary expenses not charged to each project based on time spent
 Monthly payroll/ consolidated payroll not prepared
 Consolidated tax calculation not prepared for each employee, tax calculated
project wise, inaccurate tax withholding
 No approved salary scale, Unusual increase in salary (as per budget)

FINANCIAL MANAGEMENT AND CONTROL 30

See You Tomorrow
 Procurement Cycle (Clause 9) / Standard Process
Procurement Process
Pre-Procurement Phase
Prepare Purchase Requisition
 Prepare PR in the format
 Requester is responsible for preparation
of PR

1 3
2 4
Procurement Plan
Key Questions
 Requirement Identification
 Goods and Services of What? How Check, Analyze & Authorize PR
Much ? When? Where?
 existing stocks/assets could be utilized Check Budget Head Check the same item is in the stock or not?
 analyze Lease vs. Purchase  Check the availability of Is there any alternative to optimize value for money?
Keep in Mind budget Authorized by procurement officer /admin head
 Analysis of best available  Choose the most relevant Procurement officer/admin head is responsible to
alternatives both in terms of money budget head confirm the items subject to procurement is budgeted
value and quality and corresponds to the program need.

FINANCIAL MANAGEMENT AND CONTROL 32

 Procurement Cycle (Clause 9) / Standard Process cont..
Procurement Process
During Procurement Phase Obtain and analyze Quotations
 After approval of PR, Procurement Officer prepares EOI, RFQ & shared with the potential
suppliers
 Determine the method of procurements based on the threshold/volume of procurement –
EOI / Quotes / Supplier List / Market Search
 Receive and analyze the quotes and documents
 Review vendors competence and qualifications

Select the Best Suppliers

 Select best supplier based on the combination of cost, quality, delivery and servicing to
meet the need of organization.
 Negotiations
 Anti-terrorism financing checks
 least price may not be always best price
 Use ‘Bidder Evaluation sheet’

Issue of Purchase Orders

 Issue PO to the selected supplier
 PO should be accepted by supplier after which it shall be a legally binding document.

Receive Goods /Prepare GRN

 Supplier delivers goods/services as per PO
 Store In-charge prepares ‘Goods Receipt Note’-format given
 Records the details in ‘Store Register’ or ‘Fixed Assets Register’ as appropriate

FINANCIAL MANAGEMENT AND CONTROL 33

 Procurement
Procurement Cycle (Clause 9)
Process
Post Procurement Phase

09 10 11

Receive & Check Invoice Prepare & Authorize Pay your Supplier
Payment Voucher
Receive invoice from supplier Make payment to supplier
On confirmation of the
Finance Officer/Manager check the correctness of Invoice received, Ensure deduction for Tax and other
invoice details with quotation, PO and prepare payment voucher retentions if any as per contract
GRN, verify quantity & rates. terms
Authorize the payment voucher
Check accuracy for bill amount Obtain receipt acknowledgement
by the appropriate authority
arithmetical and VAT including other from the supplier against the
details in invoice invoice raised
Close the PO/Contract

FINANCIAL MANAGEMENT AND CONTROL 34

 Procurement Best
Procurement Risk Management
Practices
Ensure there is adequate segregation of
Establish standardize procurement Policy duties. No one person should be able to prepare
and procedures. Including standard forms, a transaction, approve it, process it and then
formats, authority levels and checklists. reconcile procurement transactions.

Adequate system of vendor / bidder Procurement system and policy should promote
evaluation and management. Including on site fairness, integrity and transparency, best
and desk review, vendor due diligence, effective value for money, environmental considerations
communication with vendor, market knowledge. and management conflict of interest.

Management procurement related decisions Adequate audit trails of procurement process

should serve in best interest of the which includes documentation of
organization and its stakeholders management decision minutes, facts and
including the donors. Management decision is data for management decision like market research
supported by adequate and appropriate facts and report, vendor evaluation documents, Tender and
figures. bid documents from pre to post procurement phase
etc.

FINANCIAL MANAGEMENT AND CONTROL 35

Common Audit Observations - Procurement

 Annual procurement plan not prepared

 Approved vendor list not maintained
 PR, RFQ, PO, GRN not prepared/ improperly prepared
 Competitive procurement policy not followed
‒ Requisite quotations not obtained
‒ Registration documents of vendors not obtained
‒ Procurement slicing
 Difference in invoice amount and quoted amount
 Rate not quoted for the goods procured
 Deviation from procurement policy (including sole sourcing) not documented/authorized

FINANCIAL MANAGEMENT AND CONTROL 36

Common
CommonRisk
Risk Indicators inProcurements
Indicators in Bid Evaluation

Inconsistencies in the dates of the Unusual similarities in offers of Financial statement or other information
documents or illogical sequence of candidates participating in the indicating that two tenderers participating
in the same tender are related or part of a
dates. same tender.
same group.
- Offer dated after the award of contract
or before the sending of the invitations - Same wording, sentences and
where financial statements are provided, the
to tender. terminology in offers of different
notes to the financial statements may
- Offer of the winning tenderer dated tenderers
disclose ultimate ownership
before the publication date of the - Same layout and format (e.g. font
of the group. Ownership information may
tender or dated significantly later than type, font size, margin sizes, indents,
also be found in public domain
offers of other tenderers paragraph wrapping, etc.) in offers of
- Offers of different candidates different tenderers
participating in the same tenders all - Similar letterhead paper or logos
having the same date - Same prices used in offers of
- Dates on documents not different tenderers for a number of
plausible/consistent with dates on subcomponents or line items
accompanying documentation (e.g. - Identical grammatical,
date on the offer not Plausible / orthographical or typing errors in
consistent with the postal date on the offers of different tenderers
envelope; date of a email not - Use of similar stamps and
plausible/consistent with the printed similarities in signatures
date of the email)

FINANCIAL MANAGEMENT AND CONTROL 37

Common
CommonRisk
Risk Indicators inProcurements
Indicators in Bid Evaluation

Other elements and examples Other documentation, issues and

Inconsistencies in the selection
indicating a risk of privileged examples indicating a risk of
and award decision process.
relationship with tenderers. irregularities.

- Award decisions not plausible /

consistent with selection and award - A same tenderer (or small group of
- Use of photocopies instead of original
criteria tenderers) is invited to different
documents
tenders with unusual frequency
- Use of pro-forma invoices as supporting
- Errors in the application of the - A same tenderer (or small group of
documents instead of official invoices
selection and award criteria tenderers) wins an unusually high
- Manual changes on original documents
proportion of the bids
(e.g. figures manually changed, figures
- A tenderer is frequently awarded
"tippexed“ or tampered, etc.)
contracts for different types of goods
- Use of non-official documents (e.g.
or services
letterhead paper not showing certain official
- The winning tenderer invoices
and/or compulsory information such as
additional goods not foreseen in the
commercial registry number, company tax
offer (e.g. additional spare parts
number, etc.)
invoiced without clear
justification, installation costs invoiced
while not foreseen in the offer).

FINANCIAL MANAGEMENT AND CONTROL 38

Session Break
Common Audit Observations- Fixed Assets & Inventory

 Absence of policy for classification of fixed assets and inventory

 Fixed assets not coded and Fixed Assets Register with the details of the assets not
maintained/updated regularly (details of purchase date, purchase price, code, location,
condition).
 Inventory register not maintained with details of purchase, consumption and balance.
 Logbook for vehicles not maintained, fuel consumption analysis not done
 Physical verification of fixed assets and inventory not conducted at least annually.
 Excess/shortage of assets/inventory during audit verification
 Comprehensive insurance policy for fixed assets and inventory not procured.
 Details of assets procured from internal funds & donor funds not maintained separately
 Grants-in-kind not recognized in books of accounts and memorandum registers
 Unused/damaged assets not disposed (including donor compliances)
 Reconciliation of assets value as per accounting records and register
 Fixed assets not used for intended purpose, FA procured at the end of the project
 Handover documents of FA not maintained

FINANCIAL MANAGEMENT AND CONTROL 40

 Common Costs Allocation
Indirect / common costs to be allocated among different donor projects based on some defined criteria to ensure
that the costs corresponding to benefits or services availed by a particular donor project are charged to the
concerned donor project only. The allocation method can be subject to donor guidelines.
Multiple allocation base (leads more precise allocation)

Indirect costs Basis for allocation

Premises rent In the ratio of space occupied by dedicated staff working on specific donor projects

Office Utilities Number of persons working on specific donor projects

Personnel cost of Percentage effort spent by the employee on respective project.
shared staff
Vehicle running and Distance travelled for implementing program activities for different donor projects
maintenance
Operation & Budget volume for active donor projects to which such costs are to be allocated
maintenance

Single allocation base (less complex, requires less time and effort)
Single allocation rate can be used for allocation of common cost which is derived based on weighted average of
various cost drivers or based on single key cost drivers like direct staff, direct cost .
FINANCIAL MANAGEMENT AND CONTROL 41
 Labor Act, 2017

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 42

Labor Laws
Types of employments

 Regular: Persons hired for work or service other than work based, time based, casual or piece rate
employment
 Work Based: Persons hired for rendering a specific service.
 Time Based: Persons hired for rendering service for a definite time period.
 Casual: Persons hired for seven days or less than seven days a month.
 Part-time: Persons hired for 35 hours or less than 35 hours a week

Remuneration and Benefits

 Salary not less than the minimum remuneration (Total NPR 15,000 | Basic salary: Rs 9,385 & Rs 5,615)
 Festival Allowance – 1-month basic salary
 Provident fund – 10% of monthly basic salary
 Gratuity- 8.33% of monthly basic salary
 Medical Insurance – Rs 1 Lakh, 50% of premium to be borne by employer
 Accidental insurance – Rs 7 Lakhs
 Relocation Allowance – 1 month salary, Travel DSA (including to dependents), Transport cost of luggage
 Remuneration Payment via Banking Channel

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 43

 Legal requirement
Leave Benefits

Leave Days Leave Days

Annual 18 Compensatory To be utilized within 21

Leave leave days
Sick Leave 12 Mourning leave 13 days
Maternity 98 days (60 fully paid) Weekend Off 1 day
leave <Right to Safe Motherhood and Reproductive Health
Public holidays 13 days p.a. and 1
Act 98 days fully paid leave>
additional to female on
Paternity 15 International Women’s Day
Leave

Leave Accumulation and Encashment

 Accumulation of Home leave - 90 days, Sick leave - 45 days

 Excess accumulation than above encashed every year and other at time of retirement based on last basic
pay.

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 44

Legal requirement
Working hrs.
 Maximum working hour 8 hours per day and 48 hours per week.
 30 minutes’ break should be provided after 5 hours of work, where the work can be interrupted
 Maximum overtime 4 hours per day and 24 hours per week. Overtime pay of 1.5 times of the regular
remuneration

Other compliances

 Employment Agreement - term based agreement, necessary terms of service and benefits
 Annual Increment of Salary – At least ½ day salary.
 The performance appraisal of its employees once in a year
 Employee age not less than 18 years
 Compulsory retirement after 58 years
 Labour audit to be done annually by any person defined under the act or own employee possessing such
qualification.
 Organization shall maintain required detail of employee / personnel file. Also, employer shall maintain
record of remuneration and attendance for at least 5 years.
 Probation period max 6 months.
 Final settlement amount to employee within 15 days of date of separation by any reason.

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 45

Session Break
 Social Security Law

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 47

 Legal requirement
Registration

 Contributions based Social Security Act 2017 (SSA) provides for the compulsory listing of employers. SSA
compulsorily requires the employer to enlist all employees in the SSF within 3 months of registering itself. In
case of new employee, within 3 months from the date of employment.
 SSF may direct the employers to get its employee listed within prescribed time frame. It would be responsibility
of the employers to comply SSF’s direction. Non-compliance of SSF’s direction would attract penalty of NPR
50,000 as per section 51 of the SSA.
 An action has been initiated by SSF to get it implemented by force through all level of regulators

Contribution
The employer shall deduct 11% of basic remuneration of the employees and contribute additional 20% of the
basic remuneration of the employee itself and deposit a total of 31% to the SSF into the employee’s SSF
account within 15 days from the end of the Nepali month.
SSF can recover the contribution from the employer for failure of deposition with 10% interest within the 15
days from end of each month., In case the employer has misappropriated the amount to be deposited in SSF
the employer is subject to fine up to the amount involved (or Rs 100,000 if the amount cannot be determined)
or imprisonment up to 1 (one) year or both.
COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 48
Contribution under Labor Act Vs SSA

Labor Act Social Security Act

 10% of basic remuneration as Provident Fund  Lump sum 20% contribution (It covers
employer’s contribution of provident fund,
 8.33% of basic remuneration as Gratuity gratuity and insurance premium). No additional
contribution is required per labor laws if 20% is
 50% premium for medical insurance of every contributed.
employees to the extent of NPR 100,000
 Lump sum 11% contribution from employee
 100% premium for accidental insurance of every (10% for PF and 1% for SST)
employees to the extent of NPR 700,000

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 49

 Contribution and application proportions

Social Security Schemes Contribution% of Application

Basic salary
Old Age Security Scheme (Refundable) 28.33% 91.38 %
- Retirement benefit Scheme (8.33%)
- Pension Scheme (20%)*
Health, Medical Treatment and maternity security Scheme 1.0% 3.23 %
Accidental and Disability Security Scheme 1.4% 4.52 %
Dependent Family Security Scheme 0.27% 0.87 %
Total 31% 100%

* Pension scheme becomes mandatory for employees registered into SSF from 16 July 2021 (i.e. 1st Shrawon
2078) and eligible for pension only if the employee’s age turns up 60 years and contributes to SSF at least for
180 months.
** Only the old-age security scheme is refundable. Other scheme’s benefits are non-refundable but subject to
claim as prescribed.

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 50

Old Age Security Scheme | Retirement benefit Scheme

Retirement payment:
100% lump sum payment of accumulated fund (including return from the fund):
- to the contributor at the time of retirement or termination of employment
Benefits - In case of death of contributor – to the nominee
Loan Facility
80% special loan of the total available fund will be allowed to the contributors who has contributed
to the fund for a continuous period of 3 years as per the Investment procedures 2077 of SSF.

- 8.33% (out of 28.33%) deposited

- Voluntarily deposited additional amount, if any
- Amount transferred from other fund (past CIT and PF)
Contribution - Amount transferred based on written request made by the existing contributor’s or potential
to the fund contributors started deposit to the fund by 2078 Asar to the pension fund
- Additional amount transferred after written application to consider deposit in excess of 3 times
minimum wages
- In case of contributors having 60 yrs of age- 100% of amount transferred to pension scheme.

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 51

Old Age Security Scheme | Pension Scheme

- Case 1: After reaching retirement age (60 yrs):

Monthly pension for his/ her lifetime = (total amount of contribution + return earned) / 160

- Case 2: death of the contributor prior to retirement age,

Lump sum payment to beneficiary = the amount contributed to the SSF including the return on the
fund.
- Case 3: after starting to get pension but before getting pension for 180 months
Benefits
spouse of contributor will get lifetime 50% of monthly pension as computed in Case 1 ( provided
that spouse of contributor has no alternative employment or pension facility or such spouse has
not done another marriage)

- Case 4: contributor completes 60 years of age without contributing for 180 months
Can choose either Lump sum payment of the amount contributed to the SSF including the return
on the fund or life time Monthly pension as computed in case 1.

Contribution 20% (out of 28.33%) deposited (excluding additional amount transferred to retirement scheme
to the fund after written application to consider deposit in excess of 3 times minimum wages)

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 52

Medical Treatment, Health and Maternity Security Scheme
Medical benefits to contributor and his/her spouse
- Treatment at Hospital up to Rs 100,000 while OPD up to Rs 20,000.
- Treatment at Hospital for Fatal Diseases up to Rs 1,000,000.
- 60% of basic salary payment for unpaid sick leave (exceeding 12 days) due to hospitalization
or treatment at home under recommendation. Such payment will be for max 79 days.
Benefits Maternity Security Scheme benefits to contributor’s wife or female contributor
- Treatment at Hospital up to Rs 100,000 (also covered for treatment cost of the infant up to 3
months)
- Amount equivalent to 1 month minimum salary per child shall be provided in case of delivery of
child, miscarriage after 24 weeks of pregnancy or incase of stillbirth.
- 60% of basic salary payment for unpaid maternity leave up to 38 days.

For regular medical and maternity medical benefits:

Continuous contribution for 3 months in the SSF and remain valid for 3 months after contribution
stopped. Re-deposition for continuous deposit of another 3 months required to become eligible.
Eligibility For fatal disease treatment:
Continuous contribution for 2 years in the SSF and remain valid for 2 year after contribution
stopped. Re-deposition for continuous deposit of another 2 year required to become eligible.
In both case the contributor is required to bear 20% of hospital treatment cost.
COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 53
Accidental and Disability Security Scheme

Treatment expenses due to accident and occupation related diseases:

- All expense for treatment of employment related accident or disease.
- Accident other than related to employment treatment expense up to Rs 700,000.

Benefit for disability due to employment related accident and occupation related diseases
- temporary disability: 60% of basic salary for the entire period of unavailability
Benefits
- permanent partial disability: 60% of basic salary for life time pension based on proportion of
disability
- permanent partial disability: 60% of basic salary for life time pension

<The limit of the payment of the pension benefit in case of disability shall not be less than 60% of
the NG minimum basic salary>

- Contributor who suffers accident shall be eligible to avail the benefit per this scheme from the
date of contribution. It will end after contribution is stopped.
Eligibility
- Benefit related to occupation related disease can availed only after making contribution for the
period of 2 years. It will remain available for 2 more years after contribution stopped

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 54

Dependent Family Security Scheme

Pension Benefit for Spouse Scholarship to Children

- Spouse of the contributor shall receive 60% - 40% of basic salary shall be provided to children as
of basic salary as pension for the rest of his/ educational scholarship till the age of 18 in case of death of
her life in case of death of contributor due to contributor due to any reason. If more than one eligible child
any reason. 40% of basic salary shall be paid proportionately to up to two
- The benefits will not be provided in case of children.
spouse having alternative employment or - In case the child is pursuing continuous education, the benefit
do another marriage. can be extended until the age of the child is 21 years
- Benefits end on completion of education or marriage of the
beneficiary.
Benefits to dependent parents Funeral Expense
- Where contributor do not have spouse or On death of the contributor due to any reason, the
children, dependent parents shall receive dependent family or the beneficiary shall be provided
60% of basic salary proportionately for the Rs 25,000
rest of their life.
- Dependent parents shall not be eligible for
the benefit if they are employed.

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 55

 Other matters on SSF

 Employer will be relieved from all statutory obligations once the required contribution is deposited into SSF.
 Employees’ families will be secured from future untoward, if any.
 Tax benefits: 1% SST will not be applicable on first slab/threshold. Standard deductions limit increased
maximum of 5 lakhs compared to existing 3 lakhs (without SSF). At the time of retirement, funds disbursed
from SSF will attract 2.5% tax (above NPR 5 lakhs) i.e; 5% of amount above NPR 5 lakhs or 50% whichever is
higher (the provision is same as existing).
 Loss to employees due to certain conditions for insurance under the scheme.
 Employees registering after 15 July 2021 by default come under the pension scheme, hence cannot get lump
sum payment.

COMPLIANCE WITH LABOR LAWS & SOCIAL SECURITY LAWS 56

Thank You..

Any Questions?

TAXATION 57
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PKF T. R. Upadhya & Co.

124, Lal Colony Marg, Lal Durbar
Kathmandu, Nepal
T: +977 01 4410927/4420026

PKF T. R. Upadhya & Co. is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any www.pkf.trunco.com.np
individual member or correspondent firm or firms.