Value Added Tax (VAT) is an indirect tax levied on the value creation or addition. Concept of VAT in Nepal was introduced in FY 2049/50 but the act was developed in BS 2050. VAT was implemented in 1998 and is the major source of government's revenue. It is administered by Inland Revenue Department of Nepal.
Value Added Tax (VAT) is levied on items that are sold in an improved form, where value is added to an item before it is sold to you. One has to pay VAT on goods and services at various stages of their production, distribution and sale. In restaurants, VAT is not chargeable on packaged items such as drinking water, bottled alcohol and food. But it is applicable on food and drinks prepared in the restaurant kitchens.