Both the transaction value of electronic services conducted by foreign information technology companies in Nepal and the transaction of selling data collected from users in Nepal have been brought under the scope of tax.
What you should know
The government has brought targeted online advertising service i.e. targeted online advertising under the scope of tax. Along with this, the policy of taxing electronic services provided by foreign information technology companies (non-residents) in Nepal such as Facebook, Google, and Tiktok, which do not have permanent offices in Nepal, has been made more clear.
The third amended 'Procedures relating to Electronic Service Tax (Digital Service Tax), 2082' defines targeted online advertising and provides for tax. Digital interface and targeted online advertising have been defined in the revised procedure published by the Internal Revenue Department.
Earlier in the 2081 act, ``advertising services'' were generally included within electronic services . In the new procedure, paid personal promotion services and targeted online advertising services are classified under the definition section. According to this, targeted online advertising means commercial digital communication targeted through a digital interface to promote a product, service or brand based on the information or concept generated by the user's interaction with the digital interface.
Similarly, digital interface refers to any electronic platform, website, application or similar means that enables users to interact with each other or facilitate the exchange, supply or distribution of goods, services or electronic materials between users.
According to the new rules, the advertisement transactions made by foreign companies targeting users in Nepal will be taxed . When Nepali companies pay foreign companies like Facebook or Google to advertise their products or services in Nepal, 2 percent electronic service tax will be levied on that transaction. This tax has to be paid by non-residents. This arrangement is expected to increase the government's revenue collection and help regulate the digital advertising market more .
In the procedure of 2081, only the transaction of electronic services provided by non-residents to the consumers of Nepal will be taxed . The new procedure broadens this scope and provides that the electronic services provided to users in Nepal and the sale of data collected from users in Nepal will also be taxed.
In section 3 (a) of the revised procedure, the transaction value of electronic services provided by non-residents to users in Nepal and It is mentioned that the data collected from users in Nepal will be taxed at the rate of 2 percent on the transaction value of the sale. In the previous procedure, there was a provision of tax at the rate of 2 percent only on the transaction value of electronic services provided by non-residents to consumers in Nepal.
