Nepal’s Digital Service Tax policy designates specific administrative procedures to ensure effective implementation and compliance. The administration of the Digital Service Tax is structured to facilitate seamless operations for both the authorities and the non-resident service providers who are liable to pay the tax. These procedures include provisions for oversight, enforcement, and penalty imposition.
Responsible Authority for Digital Service Tax Management
The Large Taxpayer Office is the designated body responsible for administering the Digital Service Tax in Nepal. This office operates under the Inland Revenue Department’s authority and is tasked with managing all aspects of the tax, including registration, compliance monitoring, and enforcement.
The Large Taxpayer Office ensures that non-resident service providers:
- Comply with registration requirements.
- Submit their tax returns on time.
- Accurately report their taxable transactions.
Additionally, the Large Taxpayer Office can assess tax liabilities, audit transaction records, and impose penalties for non-compliance or tax evasion.
Registration and Permanent Account Number
Non-resident entities providing taxable digital services to Nepali consumers must register with the Large Taxpayer Office. Registration involves obtaining a Permanent Account Number, a unique tax-identifier. This number is crucial for filing returns and making tax payments.
The registration process includes:
- Filing an online application within 30 days of exceeding the two-million-rupee transaction threshold.
- Uploading required documentation, such as notarized copies of the business registration certificate, tax identification number, and documents related to the authorized representative.
Non-resident entities already registered under Nepal’s Value-Added Tax (VAT) system are not required to obtain a separate Permanent Account Number for Digital Service Tax. However, registration remains mandatory for those who meet the taxable criteria.
Filing Tax Returns
Non-resident service providers must file their tax returns online. Returns must be submitted within three months of the completion of the income year. These returns should include:
- Details of the transaction value in Nepali currency.
- The calculated tax liability is based on the 2% tax rate.
Failure to submit tax returns within the stipulated timeline incurs penalties, which the Large Taxpayer Office strictly enforces.
Payment of Digital Service Tax
Non-resident service providers are required to pay the Digital Service Tax within three months following the completion of the income year. Payments must be made online to the designated revenue heading, ensuring streamlined and transparent processing.
If a service provider fails to pay the tax within the specified time, an annual interest of 15% is imposed on the unpaid amount. This provision ensures prompt payment and discourages delays in fulfilling tax obligations.
Auditing and Tax Assessment
The Large Taxpayer Office is authorized to conduct audits of the transactions reported by non-resident service providers. These audits aim to verify the accuracy of reported transaction values and tax payments. If discrePermanent Account Numbercies are found, the Large Taxpayer Office is empowered to assess and impose penalties as outlined in the policy.
The auditing process includes:
- Reviewing evidence or information that suggests underreporting or concealment of taxable transactions.
- Issuing an initial tax assessment order based on the findings. This order is sent to the email address provided during registration or delivered to the authorized representative.
After the initial tax assessment, service providers are granted 15 days to submit evidence or justification to contest the evaluation. The Large Taxpayer Office then reviews the submitted materials before issuing a final tax assessment order. If the provider is found to have intentionally concealed taxable transactions, a penalty of 50% of the evaded tax amount is imposed.
Penalties for Non-Compliance
The policy enforces strict penalties for non-compliance to ensure compliance with the Digital Service Tax regulations. These include:
- Late filing penalties: If tax returns are not filed within the deadline, a fee of 0.1% per year is charged.
- Interest on late payments: Overdue tax payments are subject to a 15% annual interest rate.
- Concealment penalties: If a provider is found guilty of underreporting taxable transactions, a fine equal to 50% of the concealed tax amount is imposed.
These measures aim to maintain accountability and transparency in the administration of the Digital Service Tax.
Transparency and Notifications
The policy mandates clear communication between the tax authorities and non-resident service providers. Notifications regarding tax assessments, registration status, and penalties are sent electronically to the email address provided during registration. This ensures that service providers are informed promptly about their obligations and any actions taken by the tax office.
Source: Digital Service Tax 2079 (2022)
