Taking billions of money from Nepal, social network, Facebook alone takes more than 60 billion profit annually

Although the government has made a law to bring foreign companies dealing in electronic services in Nepal under the scope of taxation, most of the companies are outside the tax system.

Through the financial act of the current financial year, the government made provision regarding electronic service tax (digital service tax). However, so far only two companies have been registered in the digital service tax system, according to the Internal Revenue Department.

‘Until now, only two companies namely Google and Ibsco Inc. have joined DST. Other companies are also showing interest. However, since such a tax system is new for us and cannot be binding, the challenge is how to bring other companies under the tax scope,’ said Rajuprasad Pyakurel, spokesperson of the Internal Revenue Department.

The Financial Act of the current fiscal year provided that ‘electrical service tax will 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 financial law, there is no such tax in transactions up to Rs. 20 lakhs per year.

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. However, it is not clear how companies that have not been registered with the department will be affiliated and pay taxes.

Spokesperson Pakurel says that action has been taken against such foreign companies registered in the department if they do not pay taxes, but it is not clear what action will be taken against those who are not registered.

According to the Financial Act of the current financial 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 concealed, a penalty of 50% of the tax amount will be imposed. However, there is no provision in the Economic Act that companies providing services abroad must be registered in Nepal to pay taxes.

A government study has shown that a large amount of revenue is being lost due to not being able to bring the digital business companies including social networks serving within Nepal under the scope of taxation.

The Nepal Revenue Consultative Committee’s ‘Report, 2079’, which was canceled by the decision of the Council of Ministers on October 11, stated that a large amount of money has been generated only from advertisements through social media in recent years.

‘In Nepal, the trend of advertising on social networks that are not legally registered has increased rapidly. Such social networks are taking billions of rupees from Nepal to foreign countries every year,’ the report said.

The report of the Revenue Consultative Committee, quoting data from Data Portal.com, has mentioned that by the year 2022, there are 13.3 million users of Facebook in Nepal.

According to Statista, a market research company, Facebook’s advertising revenue per advertiser reached 40.96 US dollars in 2021. That income was equal to 32.03 US dollars in 2020,’ said the report of the Revenue Consulting Committee, ‘Looking at it in this way, Facebook is earning more than 60 billion annually for viewing advertisements by Nepali users.’

Provisions of other countries

In Bangladesh, the National Board of Revenue has been collecting 15 percent value added tax (VAT) by registering companies like Facebook and Google. Apart from that, there is a provision of 15% TDS on payments to non-residents for online advertisement.

Similarly, big online businesses including Facebook have been registered and operating in India as well. Online advertising in India is subject to 18% Goods and Services Tax (GST) and 2% TDS as income tax.

It is mentioned in the report of the Revenue Consultative Committee that customers are paying taxes and service fees of the respective countries when they advertise or take online services from unregistered companies, non-residents or non-residents in Nepal through informal channels. It is believed that when such companies are registered and advertised in Nepal, it will be cheaper than other countries and the revenue will also increase in Nepal.

For example, when advertising on Facebook, you have to choose which country address to advertise from. Let’s say if you choose India, you have to pay an amount including 18 percent GST on the fees charged for advertising on Facebook.

While advertising informally, after that eighteen percent, ten percent flat fee has been paid for advertising. If such companies can be registered in Nepal and arrange payment legally, advertising from Nepal will be cheaper than advertising from India.

“In the case of Nepal, it can be assumed that if there is an arrangement to collect 15% TDS and no VAT at the same time as the card is issued to natural persons, the service users may be attracted towards it,” said the report of the Revenue Consultative Committee. It seems that more than Rs. 9 billion will be collected.’

The Revenue Consultative Committee itself suggested to the government in the ‘Revenue Policy and Tax Reforms Report for the Financial Year 2079/80 2079’ that companies providing digital services, including social networks, should be brought under the ambit of taxation and implement a system of doing business only by deducting tax in advance.

“Foreign platforms that advertise online in Nepal should be brought under the tax regime by implementing the system of submitting income tax returns or otherwise filing revenue as an advance tax deduction at a fixed percentage rate at the time of payment,” said the report.

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