20  foreign companies start paying Digital Srvice Tax

KATHMANDU, NOVEMBER 8: Some 20  foreign companies such as Apple, Google, Microsoft, Meta, TikTok, and Netflix have started paying Digital Service Tax (DST) for providing electronic services to consumers in Nepal.

According to Dhruva Prasad Pandey, Chief Tax Officer and Information Officer at the Large Taxpayer Office, these registered companies began paying a 2% DST on transaction values in Nepal. This provision was introduced under the Economic Act for fiscal year 2022/23. It has been two fiscal years since its introduction, but not all companies offering digital services in Nepal have registered for DST.

The registered companies in the country 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 Inc.

Other companies include EBSCO International Inc., 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 Services Private Limited.

Out of these, TikTok recently had a ban conditionally lifted in Nepal. Similarly, Google Asia Pacific Private Limited is notable as a branch of the world's largest search engine, Google.  Facebook, Instagram and LinkedIn are prominent social media platforms.

Other registered companies have diverse specializations: NCS Pearson Inc. develops various mobile applications, EBSCO International Inc. focuses on research platforms and database management, and Microsoft remains a global giant in software development.

The inclusion of DST in the Economic Act was intended to boost revenue by bringing digital service providers into the tax net. However, despite legal provisions, a significant number of companies have yet to register. The current Economic Act mandates that anyone providing electronic services in Nepal must submit an annual report and pay a 2% tax on their transaction value. Yet, there is no explicit regulation on enforcing registration and tax compliance for non-registered foreign companies.

The Economic Act has increased the tax-exempt transaction threshold from NPR 2 million to NPR 3 million per year. Companies that fail to file reports on time face a 0.1% fee on their annual transaction value and a 15% interest charge on overdue tax payments. Additionally, underreported or hidden tax liabilities incur a 50% penalty. However, the Act does not explicitly require foreign companies to register for tax purposes.

Reports indicate that Nepal is losing significant revenue because many digital service providers remain untaxed. A study conducted by the former Revenue Advisory Committee, titled "Study on Revenue Scope Expansion, 2079," revealed that substantial sums are leaving the country through social media advertising.

The report highlights the growing trend of advertising on non-registered social media platforms, resulting in billions of rupees flowing out of Nepal annually. Referencing data from Data Portal, the study stated that Nepal had 13.3 million Facebook users as of 2022. According to market research firm Statista, Facebook's revenue per advertiser increased from $32.03 in 2020 to $40.96 in 2021. Based on these figures, it is estimated that Facebook generates over NPR 60 billion annually from advertisements viewed by Nepali users.

Although this data is three years old, there has yet to be a comprehensive study on the current number of electronic service providers in Nepal and their estimated annual revenue.