Windfall Gain Tax (आकस्मिक लाभमा कर) per Nepal Income Tax Act

Nepal's Income Tax Act defines Windfall gain as a gain obtained by means of lottery, gift, prize, tips, share of earning in a game (जितौरी)  or any other gain acquired incidentally. 

Let us explain by example what can potentially be Windfall Gain. 

1) Let's say apple recently launched a iPhone 14 in Nepal. Part of such launch, company offered its customer who buys iPhone, an iPad for free. The market value of the iPhone is Rs. 214,000 and that of iPad is Rs. 189,000. In such case, customer who received Rs. 189,000 worth of iPad without any additional cost will be considered a prize hence, a windfall gain.

2) Recently DRS gaming won US$ 292,000 (approx. Rs 4 crore) for being runner's up in the grand finals of the PUBG Mobile Global Championship. Let's assume here that DRS gaming has not been registered as a company but simply represented by individuals. If I am not mistaken, there are 4 members in the team. So, each individual will have won Rs. 1 crore as share of earning from a game, hence, will be classified as windfall gain. 

Now, let's talk about how tax will be levied on such windfall gains. Section 88Ka states it is the responsibility of the organizer or company paying such windfall gain to levy 25% tax during payment. This is possible if the prize amount is cash or the payment is being made in cash. However, if it is goods or cash being provided by international organizer, then, things might get bit complicated.

Let's crack down the example that we discussed earlier and see how tax will be levied on such cases. Will it be the responsibility of the company/organizer or one individual wining such windfall gain to pay such taxes?

1) In the first case, company is providing goods for free hence, will request customer to pay Rs. 47,250.00 (25% of iPad market value Rs. 189,000) tax on their own, such tax will be collected by the company and deposited in the Tax Office.

2) In the second case, since organizer is a foreign entity not registered in Nepal, payment of taxes will be the responsibility of each individual who won such prize money, and they will have to pay Rs 2,500,000.00 each. (25% of individual share of earning from the game Rs. 1 crore).

Well, at this moment, you might have a question, is there any waiver allowed on such windfall gains meanings taxes will not be levied/exempted. I must tell you that such provision exists, and it goes like this:

• No tax will be levied on national and international award of up to Rs. 500,000 for contribution made to literature, art, culture, sports, journalism, science, technology and public.
• For amount above Rs. 500,000 it is at the discretion of Nepal Government and for that such exemption notice must be published in the Nepal Gazette.

Have you ever won a prize or lottery? How did the company or organizers deal with it? Please leave your comment.