Overview of Digital Service Tax (DST) of Nepal-Details

The document “Procedure Relating to Digital Service Tax, 2079” is a guideline issued by Nepal’s Inland Revenue (IRD), Department to administer the digital service tax on transactions made by non-resident digital service providers for consumers in Nepal, as stipulated in the Finance Act, 2079 (2022). Below is a structured summary.

1. Purpose and Scope:

The document outlines the procedural and administrative requirements for implementing a 2% digital service tax (DST) on non-resident digital service providers offering services to Nepal-based consumers. The providers here are example: Google, Amazon, Facebook, TikTok, and many more. This tax aims to regulate and streamline tax collection from foreign digital services consumed in Nepal, ensuring compliance and accountability.

2. Key Definitions:

The document defines terms relevant to the digital service tax:

• Consumer: An individual residing in Nepal who consumes goods and services, excluding those used for business purposes.
• Non-Resident Person: Any digital service provider not domiciled in Nepal.
• Digital Service: Broadly covers services that require information technology and are automatically provided with minimal human intervention, including advertisements, OTT services (movies, music), data storage, cloud services, gaming, e-commerce platforms, software updates, and educational content.

3. Taxation Basis and Rate

The digital service tax is set at 2% of the transaction value, which is the service’s cost excluding indirect taxes levied in Nepal. However, digital services under a transaction value of NPR 2 million per income year are exempt. Once the threshold is crossed, tax applies to the entire transaction value. This tax is direct and should not be added to the service cost for consumers.

4. Registration Process:

Non-resident service providers must register with Nepal’s Inland Revenue Department to conduct transactions. They must apply for a Permanent Account Number (PAN) and submit specific documentation, including proof of business registration in their home country, a tax identification number, and information about an authorized representative. A registration certificate is issued within seven days of application approval.

5. Accounting and Reporting Requirements:

Non-resident service providers are required to maintain records in Nepalese currency and follow an accrual basis of accounting for tax purposes. They must submit annual transaction returns online within three months of the fiscal year-end. If returns are late, a fee of 0.1% of the tax amount per year applies.

6. Tax Payment and Penalties:

Tax payments are due within three months of the end of the income year, with interest charges of 15% annually on unpaid tax beyond this period. Non-compliance, such as underreporting transaction values, may result in an audit, with additional penalties of 50% of the concealed tax amount. The Inland Revenue Department is authorized to assess and impose penalties for tax concealment.

7. Cancellation of Registration

Non-resident service providers who cease operations in Nepal or wish to deregister must apply to the tax office. The department will provide a response on the cancellation request within three months.

This document primarily serves as a guideline for foreign digital service providers to understand their tax obligations in Nepal and ensures that the government can regulate and collect taxes on the expanding digital economy.

Note: The document of Digital Service Tax (DST) can be found from Inland Revenue Department.