I have a question regarding VAT recovery on vehicles. I was recently informed that VAT cannot be claimed on two-wheelers, even if the vehicle is purchased in the company's name. However, I am planning to buy a motorcycle for business use and, during my own research, I came across several sources claiming that "100% VAT can be reclaimed on two-wheelers." Can anyone clarify whether VAT is recoverable on a company-owned motorcycle used for business purposes? If so, under what conditions does this apply? I would also appreciate it if someone could point me to the relevant VAT legislation, section, article, or official guidance that covers this scenario.
In short: VAT Recovery on Company-Owned Motorcycles: Is 100% VAT Claimable?
Response:
Yes, you can claim 100% VAT input tax credit on two-wheelers (motorcycles, bikes, and scooters) purchased i the company's name for office use in Nepal. The common misconception that VAT cannot be claimed on two-wheelers is incorrect.
Legal Basis:
1. Primary Legal Provision: Rule 41(2) of Value Added Tax Rules, 2053 (2096 BS)
Rule 41(2) specifically restricts VAT input tax credit to only 40% for passenger vehicles (four- wheelers). The rule states:
"40% of the VAT paid can be claimed as credit on purchase of automobiles for administrative purpose"
Key Point: This restriction explicitly applies to passenger vehicles/automobiles (four-wheelers), NOT two-wheelers.
2. Absence of Restriction on Two-Wheelers
No provision in the Value Added Tax Act, 1996 (2052 BS) or Value Added Tax Rules, 1997 (2053 BS) prohibits or restricts VAT input tax credit on two-wheelers.
3. Section 16 of Value Added Tax Act, 1996
Section 16 allows VAT deduction/Input Tax Credit for:
"VAT paid on import of goods or services or purchase of goods or services which is directly related with the taxable business"
Since two-wheelers purchased for office/transport use are directly related to taxable business activities, full VAT credit is allowable.
Conditions for Claiming 100% VAT on Two-Wheelers
- Company Ownership: Vehicle must be registered in the company's name (not personal)
- Business Use: Must be used for office/business purposes (transport, delivery, field work)
- VAT Registration: Your organization must be VAT-registered
- Valid VAT Invoice: Must obtain proper VAT invoice showing PAN of the company
- Taxable Output: Your business must generate VAT-taxable output (to claim full credit)
Disclaimer
This legal opinion is based on the current VAT laws and regulations of Nepal as of June 2026. Tax laws may be amended through annual budgets. Please verify with your local Inland Revenue Office or consult a practicing Chartered Accountant for your specific circumstances before filing.
