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Digital technologies have revolutionized how businesses conduct their operations and altered how a business interacts with partners and customers through internal process transformation and opportunity creation. International Tax Practices formulated for the traditional brick-and-mortar economy fail to address the tax challenges of the digital economy.
India began implementing an equalization levy in 2016 at a rate of 6% of the amount of advertising payment to non-residents. In 2020, it expanded in scope while dropping its rate to 2%. France has also introduced a Digital Service Tax or ST of 3% on the portion of income related to France after the application of the “French Digital Presence” ratio.
Nepal introduced a 2% digital service tax that will be charged on services provided over the internet to Nepali consumers by non-resident persons (Foreign Digital Service Providers) through the Annual Finance Act 2079 (2022 AD) in case the annual turnover crosses the threshold of Rs 2 million (approximately USD 15,500).
“Digital service” includes following services whose delivery essentially requires information technology and provided automatically through internet with minimal human intervention: -
• Advertisement,
• Data storage service
• Cloud service,
• Gaming
• E-Commerce
• Service related to mobile application
• Sales of data collected from resident persons of Nepal,
• Download of data, images and similar services,
• Education, consultancy, skill development and training service,
• Movies, television, music, and other similar subscription-based services
• Other Similar Services
When any of the following conditions are fulfilled, digital services is deemed to be provided in Nepal:
• Service is received within Nepal,
• Billing address of services is in Nepal
• Payment is made through bank accounts or a payment instrument operated by Nepali institution or entity that has a license to do business there.
• Payment is made via digital payment instrument issued by banks or licensed payment provider institution or entity of Nepal,
• Service is received via internet protocol address in Nepal,
• Service is received via SIM card having country code of Nepal or landline of Nepal
As per the Act, a taxable person must submit an application to the Nepalese Tax Authorities for a permanent account number (a unique 9-digit identification number) within thirty days after the date on which the transaction threshold is exceeded. However, non-residents may submit an application at any time to get a permanent account number in the case of voluntary registration.
Non-resident person shall file return to the office through online within 3 months of the completion of income year(mid-July). In case tax return is not filed within the time limit, fee of 0.1 percent per year shall be charged.
Tax shall be paid within three months after the completion of income year (mid-July). In case, failure to pay tax within the stipulated time limit, interest of fifteen percent annually shall be charged.
The Nepalese Tax Authority has made an encouraging move toward taxing the pervasive digital economy, which is anticipated to boost the nation's revenue collection. However, as a unilateral taxation measure, the 2% DST has economic and geopolitical challenges that need to be addressed for its successful implementation.
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