Six international companies including tech giants Google, Facebook and Microsoft working in the field of information technology and digital services are registered in Nepal's tax system.
In order to bring the foreign companies dealing in electronic services in Nepal under the purview of taxation, the government made provision regarding electronic service tax (digital service tax) through the Financial Act of the current fiscal year. Sadhuram Pudasaini, a tax officer at the Large Taxpayer Office (LTO), said that six foreign companies have been registered according to the same arrangement.
Companies paying electronic service tax are being registered with the major taxpayers' offices. Although the government has made a law to bring such companies under the tax regime, most of the companies are still outside the tax system.
According to the LTO, three companies with offices in Singapore - Google Asia Pacific Pvt Ltd, Microsoft Regional Sales Pvt Ltd and LinkedIn Singapore Pvt Ltd - have been registered.
Similarly, NCS Pearson Corporation with address in Bloomington, United States of America and Ibsco International Incorporation with address in Wilmington County of New Castle are also registered with the LTO. Meta Platforms Ireland Limited with Dublin Ireland address is also registered in Nepal.
Among the companies registered in Nepal so far, Google Asia Pacific Private Limited is the mother company of Google, one of the world's largest search engines. Similarly, social networks Facebook (including Instagram and WhatsApp) and LinkedIn are also registered.
Among the other registered companies, NCS Pearson Corporation develops various types of mobile applications, while Ibsco Corporation is a research platform and database management company. Microsoft is also one of the world's largest companies in the field of software development and information technology.
The Financial Act of the current fiscal year has provided that “electronic service tax shall be levied at the rate of two percent on the transaction value of electronic services provided by non-residents to consumers in Nepal.” In the case of annual transactions up to Rs 200,000, the provision of no such tax has been laid down in the Financial Act.
According to the provisions of the Act, a person who provides electronic services in Nepal must file their business details and taxes according to the income year. It is not clear how companies that have not been registered with the LTO will be affiliated and pay taxes. Even though action has been taken in case of non-payment of taxes by foreign companies registered with the LTO, it is not clear what action will be taken against unregistered companies. Since such a tax system cannot be binding for all information technology companies serving in Nepal, it seems that most of the companies are outside the tax system.
According to the Financial Act of the current fiscal year, if the statement is not filed within the specified time, the amount will be charged at the rate of 0.1 percent of the annual transaction amount and if a person does not file the tax within the specified date, interest will be charged at the rate of 15 percent per annum.
It is stipulated that if the amount of tax to be filed is under-filed or if it is hidden, a penalty of 50% of the tax amount will be imposed. It seems that there is no provision in the Financial Act that companies providing services abroad must be registered in Nepal to pay taxes.
A government study has also shown that a large amount of revenue is being lost due to the failure to bring the digital business companies including social networks serving within Nepal under the tax scope.
The Nepal Revenue Advisory Committee's 'Report, 2079', which was canceled by the decision of the Council of Ministers on September 27, stated that in recent years, a large amount of money has been generated only from advertisements through social media.
“The trend of advertising on social networks that are not legally registered in Nepal has increased rapidly. Such social networks are taking billions of rupees annually from Nepal to foreign countries,” the report said. The report of the Revenue Advisory Committee, quoting data from Data Portal.com, has stated that there were 13.33 million Facebook users in Nepal by 2022.
According to Statistica, a market research company, Facebook's advertising revenue per advertiser had reached 40.96 US dollars in 2021.