KATHMANDU, Nov 9: Foreign companies, including Apple, Google, Microsoft, Meta, TikTok, and Netflix, have started paying the Digital Service Tax (DST) for providing electronic services to consumers in Nepal.
According to Dhurba Prasad Pandey, Chief Tax Officer and Information Officer at the Large Taxpayers' Office, 20 registered companies have begun paying a 2 percent DST on the transaction value for providing electronic services in Nepal.
The Economic Act for Fiscal Year 2022/23 introduced the DST in Nepal for the first time. Although this provision has been in effect for two years, not all companies providing electronic services in Nepal have yet been brought under the DST framework.
The office reported that companies registered so far include Google Asia Pacific Private Limited, Google Ireland Limited, Google Digital Inc., LinkedIn Singapore Private Limited, NCS Pearson Incorporation Limited, Amazon.com Services LLC, and Amazon Web Services Incorporation Limited, among others.
Additionally, companies registered with the Large Taxpayers' Office include Ipsco International Incorporation, Meta Platforms Ireland Limited, Microsoft Regional Sales Private Limited, Adobe Systems Software Ireland Limited, Netflix Private Limited, Zoho Corporation Private Limited, Prometric Japan Company Limited, the Association of Chartered Certified Accountants (ACCA), Pearson Education Limited, Apple Distribution International Limited, and Apple Service Private Limited.
TikTok, which Nepal recently lifted restrictions on under certain conditions, will also pay the DST. Among the companies registered in Nepal, Google Asia Pacific Private Limited is the parent company of Google, one of the world's largest search engines, while social media platforms such as Facebook (including Instagram and WhatsApp), TikTok, and LinkedIn are also registered.
Foreign companies engaged in e-business begin paying taxes in N...
Among the other registered companies, NCS Pearson Incorporation develops various types of mobile applications, while Ipsco Incorporation is involved in research platforms and database management. Microsoft, also registered, is one of the largest companies in the world in software development and information technology.
With the inclusion of the DST provision in the Economic Act, it was expected that companies providing electronic services in Nepal would register under the tax system, contributing significantly to revenue.
Although the government has enacted laws to bring such companies under the tax system, most of them remain outside the tax framework.
According to the current Economic Act, individuals providing electronic services in Nepal must file their transaction details and pay a 2 percent tax on the transaction value annually. However, the Economic Act does not have clear provisions on how to bring companies that are not registered with the Large Taxpayers' Office under the tax system or ensure they pay the tax.
Since the tax system is not mandatory for all companies in the information technology sector providing services in Nepal, it appears that most companies remain outside the tax system.
The Economic Act of the current fiscal year raised the threshold for taxable transaction value under DST from 2 million to 3 million. Transactions up to 3 million annually are now exempt from this tax.
Additionally, the Economic Act stipulates that if the details are not filed within the specified time, a penalty of 0.1 percent of the annual transaction amount will be charged. Furthermore, if any person fails to file the tax by the due date, an interest rate of 15 percent per annum will be applied.
The Act states that if the tax amount filed is understated or concealed, a penalty of 50 percent of the underreported tax will be imposed. However, there is no provision in the Economic Act mandating foreign companies providing services abroad to compulsorily register for tax payment in Nepal.
Government studies have shown that significant revenue is being lost due to the inability to bring electronic service providers, including social media companies operating in Nepal, under the tax system.
The "Report on the Study of Expanding the Tax Base, 2079 BS" prepared by the Revenue Advisory Committee mentioned that a significant amount of money has been flowing out of the country through advertising on social media in recent years.
"The trend of advertising on social media platforms not legally registered in Nepal has sharply increased. These platforms are taking billions of rupees from Nepal to foreign countries annually," the report states.
The Revenue Advisory Committee's report, citing data from dataportal.com, mentioned that by 2022, there were 13.3 million Facebook users in Nepal.
"According to market research company Statista, the advertising revenue per advertiser on Facebook reached 40.96 US dollars in 2021. This income was equivalent to 32.03 US dollars in 2020," states the report. "Based on this, it can be seen that Facebook has been generating more than Rs 6 billion annually from advertisements viewed by Nepali users."
This data is three years old. A detailed study on how many companies are currently providing electronic services in Nepal and their estimated annual turnover does not appear to have been conducted yet.
