How do you calculate service charge and VAT on a hotel room in Nepal?

Service charge is 10% of the net room rate. VAT is 13% of the net rate plus the service charge. So a net rate of Rs 5,000 becomes Rs 500 service charge, Rs 715 VAT, and Rs 6,215 in total.

How do you split an inclusive price into net, service charge and VAT?

Divide the inclusive price by 1.243 (that is 1.10 × 1.13) to get the net. Service charge is 10% of that net, and VAT is 13% of the net plus service charge. Rs 26,660 inclusive is Rs 21,448.11 net, Rs 2,144.81 service charge and Rs 3,067.08 VAT.

Is VAT charged on the service charge?

In the convention described here, yes: VAT is 13% of the net rate plus the service charge, which is why the combined uplift is 24.3% and not 23%.

How to Calculate Service Charge & VAT for Hotels in Nepal

The short version: service charge is 10% of the net rate, and VAT is 13% of the net rate plus the service charge. Together they add 24.3% to the net, not 23%.

The two ways a rate is quoted

A hotel either quotes a price that already contains service charge and VAT (inclusive), or quotes a net rate and adds them on top (exclusive). Most hotels in Nepal quote inclusive, because the guest then pays the number on the rate card. The bill still has to show the three parts separately.

Exclusive: adding them on top

Line	How	Amount
Net room rate	as quoted	Rs 5,000.00
Service charge	10% of net	Rs 500.00
VAT	13% of (net + service charge)	Rs 715.00
Guest pays		Rs 6,215.00

Inclusive: splitting a quoted price

Divide the inclusive price by 1.243 (1.10 × 1.13) to find the net, then work forward as above. This is a real bill from Tathyastra:

Line	How	Amount
Price quoted	inclusive	Rs 26,660.00
Room revenue (net)	26,660 ÷ 1.243	Rs 21,448.11
Service charge	10% of net	Rs 2,144.81
VAT	13% of (net + service charge)	Rs 3,067.08
Adds back to		Rs 26,660.00

Round each line to the paisa, and let the net take up any rounding difference, so the three lines always add back exactly to the price the guest was quoted.

Work it out

Where it goes wrong

Adding 23% instead of 24.3%. VAT is charged on the service charge too.
Rounding each line differently, so the bill is a rupee off the quoted price and the guest asks why.
Charging service charge on things it does not belong to. Decide per item for restaurant and services.
Re-pricing a stay mid-way when the rate card changes. Each night should keep the rate it was sold at.

Let the bill do it

Tathyastra applies this convention by default. Quote inclusive or exclusive, and every bill shows room revenue, service charge and VAT as three lines that add back to the price. See how the bills work.

This guide describes how hotels in Nepal commonly apply service charge and VAT. Rates and rules are set by law and the Inland Revenue Department and can change; confirm your own treatment with your accountant.

Service charge and VAT, worked out.