Nepal’s Digital Service Tax policy provides clear guidelines for the payment process to ensure transparency and compliance among non-resident service providers. These procedures cover timelines, payment methods, and penalties for late payments.
Payment Timelines
Non-resident service providers must pay Digital Service Tax within three months following the end of the income year. This timeline ensures that payments are synchronized with the submission of tax returns, creating a streamlined process for compliance. Payment delays can result in financial penalties, so adhering to this deadline is critical.
Online Payment Mechanism
The policy mandates that all Digital Service Tax payments be made online through the designated revenue heading. This online system facilitates secure and efficient transactions, minimizing the administrative burden for non-resident service providers and tax authorities.
Calculation of Tax Amount
The total tax liability is calculated by applying the 2% Digital Service Tax rate to the disclosed transaction value. The transaction value must be reported in Nepali currency, and the resulting tax amount will be paid in the same currency. This ensures consistency in reporting and payment, simplifying the auditing process for the tax authorities.
Interest on Late Payments
If the tax liability is not paid within the stipulated three-month period, the policy imposes an annual interest rate of 15% on the overdue amount. This interest is calculated from the date the payment was due, providing a strong incentive for non-resident service providers to meet their payment obligations promptly.
Penalties for Non-Payment
Non-payment or delayed payment of the Digital Service Tax can lead to significant financial consequences. In addition to the 15% annual interest, non-resident entities may face penalties if the delay is intentional or discrepancies are found during audits. These measures are in place to ensure compliance and deter non-resident entities from evading their tax obligations.
Audit and Verification of Payments
The policy empowers the Large Taxpayer Office to audit payments made by non-resident service providers. These audits ensure that the tax amounts reported and paid align with the actual transaction values. If discrepancies are discovered, the LTO can impose penalties, including interest and additional charges, as outlined in the policy.
The audit process involves:
- Reviewing the tax returns and supporting documentation submitted by the non-resident service provider.
- Verifying the transaction values reported in Nepali currency.
- Ensuring that the 2% tax rate has been applied accurately to the total transaction value.
If underreporting or non-payment is identified during the audit, the service provider is notified, and appropriate penalties are applied.
Penalty for Concealed Tax Liability
If a non-resident entity is found to have deliberately concealed taxable transaction values, a penalty equal to 50% of the concealed tax amount is imposed. This penalty is in addition to the annual interest of 15% for delayed payment. The penalty is a deterrent against intentional tax evasion, ensuring that non-resident entities fulfill their tax obligations transparently.
Process to Pay DIgital Service Tax in Nepal
To make a payment, non-resident service providers must follow the designated process:
- Calculate the tax liability based on the 2% rate applied to the total transaction value.
- Use the prescribed online portal to pay under the designated revenue heading.
- Ensure that the payment is completed within the stipulated deadline of three months after the end of the income year.
Nonresident service providers can ensure compliance and avoid penalties by adhering to this process.
Importance of Timely Payment
Timely payment of the Digital Service Tax is crucial for maintaining compliance and avoiding penalties. The penalties for late or non-payment are substantial and include both interest and fines. Additionally, non-compliance increases the likelihood of audits, which can result in further financial and legal consequences for the service provider.
Source: Digital Service Tax 2079 (2022)
