KATHMANDU – International tech giants like Apple, Google, Microsoft, Meta, TikTok, and Netflix have started paying Digital Service Tax (DST) in Nepal for their electronic services, marking a significant step towards regulating foreign digital service providers. The DST, introduced in the Economic Act for Fiscal Year 2022/23, imposes a 2 percent tax on the transaction value of electronic services provided in Nepal. Despite this requirement being in place for two years, not all foreign companies offering such services in Nepal are yet registered under the DST system.

According to Dhurba Prasad Pandey, Chief Tax Officer at the Large Taxpayers’ Office, 20 companies are currently paying the DST. These include major entities like Google (with subsidiaries across the Asia Pacific and Ireland), LinkedIn, Amazon, Meta Platforms (responsible for Facebook, Instagram, and WhatsApp), Microsoft, Adobe, Netflix, and Zoho. TikTok, recently reallowed under specific conditions, is also registered for DST.

The Act aims to curb tax losses from unregistered digital advertising on platforms such as Facebook, which draws substantial revenue from Nepali advertisers. According to the Revenue Advisory Committee’s “Report on the Study of Expanding the Tax Base, 2079 BS,” billions of rupees leave Nepal each year for ads on unregistered foreign platforms.

Although the Economic Act raised the taxable transaction threshold to Rs 3 million annually, meaning smaller transactions are exempt, it lacks provisions to make registration mandatory for all foreign companies offering services in Nepal. Unregistered companies remain a challenge, with studies highlighting revenue losses due to non-compliance. Additionally, if companies underreport tax, a penalty of 50 percent on the concealed amount is imposed, with 15 percent interest on overdue payments.

While many registered firms have begun compliance, the government continues to explore ways to integrate more foreign digital service providers into Nepal’s tax system, aiming to capture revenue from a sector that has grown rapidly but remains partially unregulated.