International Tech Giants Register in Nepal's Tax System
The digital landscape is continuously evolving, and with it comes the need for effective taxation systems. The Nepalese government has taken a proactive step to bring foreign companies dealing in electronic services within the country under the tax umbrella. As a result, six international giants in the field of information technology and digital services, including Google, Facebook, and Microsoft, have registered in Nepal's tax system.
The Digital Service Tax Initiative
To level the playing field and ensure fairness, the government introduced an electronic service tax (commonly referred to as digital service tax) through the financial act of the current fiscal year. These companies, providing an array of services ranging from search engines to social networking, are now part of the major taxpayers' offices. However, a significant number of companies are yet to register, remaining outside this new tax system.
Who Are These Registered Companies?
Google Asia Pacific Pvt Ltd, Microsoft Regional Sales Pvt Ltd, and LinkedIn Singapore Pvt Ltd, all based in Singapore, have registered with the Large Taxpayer Office. Also enlisted are the US-based NCS Pearson Corporation and Ibsco International Incorporated, along with Ireland's Meta Platforms.
Google Asia Pacific Private Limited, a subsidiary of Google, tops the list. Google is globally renowned as one of the world's largest search engines. Also registered are social networks like Facebook, Instagram, WhatsApp, and LinkedIn. NCS Pearson Corporation, known for developing various mobile applications, and Ibsco Corporation, a research platform and database management company, have also enrolled. Microsoft, a leading name in software development and IT, completes the list.
Understanding the Digital Service Tax
The Financial Act stipulates that a 2% electronic service tax be levied on the transaction value of electronic services provided by non-residents to consumers in Nepal. However, there is an exemption for annual transactions up to Rs. 20 lakhs. Providers of electronic services in Nepal are required to file their business details and taxes according to the income year, but the mechanisms for taxing unregistered companies remain undefined.
The act further provides penalties for non-compliance. A 0.1% charge applies for statements not filed within a specified time, and a 15% per annum interest for taxes not filed by the due date. In the case of under-filing or evasion, a penalty of 50% of the tax amount is imposed.
Digital Economy and Lost Revenue
A recent government study reveals that a significant amount of potential revenue is lost due to the inability to tax digital businesses and social networks operating within Nepal. In recent years, a considerable sum has been generated from advertisements through social media. Alarmingly, unregistered social networks have seen a rapid increase in advertising, leading to substantial capital outflow from Nepal.
A startling statistic from Data Portal.com indicates that Nepal had 13.33 million Facebook users by 2022. In light of this, the social media giant's ad revenue, as reported by market research company Statista, reached $40.96 billion in 2021. Consequently, Facebook earns over 60 billion annually from advertisements viewed by Nepali users, spotlighting the missed opportunities for tax revenue.
Overall, while Nepal's introduction of digital service tax is a crucial step towards optimizing the digital economy, there's still a long way to go. Encouraging more international tech companies to register within the tax system is integral to safeguarding the country's revenue stream and ensuring fair business practices.
