The Digital Service Tax (DST) in Nepal, introduced by the Finance Act 2079/80 (2022/23), is a tax levied on digital services provided by non-resident entities in Nepal. This measure is part of the government's effort to tax the growing digital economy, especially from global tech giants that generate significant revenue from Nepal without having a physical presence.
Key Features of the Digital Service Tax in Nepal
Applicability:
- The DST applies to digital services provided by non-resident companies that do not have a physical presence in Nepal but generate income from Nepali customers.
- Digital services include, but are not limited to, online advertising, digital platforms, cloud services, streaming services, and other similar digital content or software provisions.
Tax Rate:
- The Digital Service Tax rate is set at 2% on the gross transaction value.
Threshold for Applicability:
- The tax applies if the annual turnover from digital services in Nepal exceeds NPR 2 million (approx. USD 15,000).
Scope of Services:
- Online Advertising Services: Digital advertising services, including social media ads, search engine ads, and other internet-based advertising.
- Digital Platforms: Revenue from platforms that provide e-commerce, marketplaces, or digital services.
- Streaming Services: Platforms offering audio, video, or other media streaming services.
- Cloud and Software Services: Includes revenue from the sale of software, cloud storage, and data services accessed by Nepali users.
Compliance Requirements:
- Non-resident companies are required to register with the Nepalese tax authorities for DST purposes.
- They must file returns and pay the tax quarterly.
- Failure to comply with registration and payment obligations can lead to penalties, including fines and interest on unpaid taxes.
Collection and Remittance:
- The responsibility of collecting and remitting the tax lies with the non-resident service provider.
- In cases where service providers do not comply, local intermediaries (such as banks or payment gateways) may be made liable for withholding the tax.
Administration:
- The Inland Revenue Department (IRD) of Nepal administers the Digital Service Tax, ensuring compliance and collection.
- The tax authority may issue specific guidelines or notices detailing the procedural aspects of DST compliance.
Challenges:
- Enforcement: Ensuring compliance from non-resident entities can be challenging due to the lack of physical presence in Nepal.
- Double Taxation: There are concerns about double taxation, as companies already paying taxes in their home countries may face additional tax burdens.
- International Cooperation: To enhance compliance, Nepal may need to engage in bilateral or multilateral agreements with other countries.
Future Considerations:
- The DST framework may evolve with updates from global initiatives like the OECD’s Base Erosion and Profit Shifting (BEPS) project, which aims for a more unified approach to taxing the digital economy.
Implications for Businesses
Non-Resident Entities: Companies providing digital services in Nepal need to review their operations and ensure compliance with the DST regulations, including registration, tax filing, and payment.
Local Consumers: There might be an indirect impact on pricing for digital services, as providers may pass on the tax burden to customers.
Conclusion
The Digital Service Tax in Nepal represents a significant step toward capturing revenue from the digital economy, ensuring that non-resident companies contributing to the local market also share in the tax obligations. For businesses operating in this space, understanding and complying with DST rules is crucial to avoid penalties and maintain good standing with Nepalese tax authorities.