Kathmandu: For the past six years, Nepal’s internet service providers (ISPs) have been entangled in a mounting crisis, primarily due to the government’s failure to define a single technical term.
This semantic neglect has placed the entire industry under immense financial and legal pressure. While the government originally allowed ISPs to charge up to 50 percent of their total bill as maintenance fees for “fixed wired broadband” services, exempting that portion from the Telecommunication Service Charge (TSC), the lack of a clear legal definition for “broadband” has now pushed the sector into a state of high-risk uncertainty.
The roots of this dispute trace back to the fiscal year 2018/19, when then-Finance Minister Dr Yubaraj Khatiwada introduced a 13 percent TSC on internet services. This decision faced immediate backlash as it threatened to make internet access significantly more expensive for the general public.
To mitigate this, the Ministry of Communication, under the direction of then-Prime Minister K.P. Sharma Oli, sought a compromise. By mid-2019, the Cabinet decided to provide exemptions on TSC for routers, connectivity equipment, and specifically, maintenance fees, provided that the overall cost to the consumer did not increase.
Following this agreement, the Ministry of Communication instructed the Nepal Telecommunications Authority (NTA) to allow ISPs to split their billing, designating up to 50 percent of the total amount as “support and maintenance.” This arrangement was intended to offset the cost of international bandwidth and ensure service stability without burdening the customer.
Although successive Finance Ministers, including Janardan Sharma and Bishnu Prasad Paudel, maintained or slightly adjusted the TSC rates and continued the maintenance fee provision in annual Finance Acts, the core definitions were never formalized in the Telecommunications Regulations.
This lack of formalization has left ISPs vulnerable to the shifting interpretations of government officials and regulators. Recently, the situation escalated when the administration of TSC was moved from the Inland Revenue Department to the NTA. Current and incoming finance officials, including Dr Swarnim Wagle, have introduced schemes to waive interest and penalties on disputed tax amounts. However, these “relief” measures have not satisfied ISPs. The industry argues that the government is essentially offering to waive penalties on a tax that shouldn’t have existed in the first place, rather than addressing the underlying misinterpretation of the law.
A new and controversial narrative has emerged within the bureaucracy, suggesting that “fixed broadband” consists only of the internet connection itself and does not require maintenance. Consequently, the Inland Revenue Department has begun aggressive tax audits, accusing ISPs of tax evasion. They argue that if a bill is 1,000 rupees, the maintenance fee should not be 500 rupees (half of the total), but rather a smaller fraction based on the “internet” portion alone.
This retrospective reinterpretation has led to demands for back taxes and massive fines, despite the fact that the Attorney General’s office recently ruled in favour of ISPs in a similar case involving WorldLink, stating that maintenance fees should indeed be exempt from TSC based on existing laws.
The conflict highlights a significant disconnect between the Inland Revenue Department and the NTA. While the NTA has historically approved the billing rates and structures used by ISPs, the tax authorities are now painting these businesses as criminals. Industry experts and chartered accountants point out that this entire mess could be resolved with a single sentence from the Ministry of Finance defining “fixed broadband.” However, it is believed that bureaucratic fear of oversight bodies like the Commission for the Investigation of Abuse of Authority (CIAA) has prevented officials from providing the necessary clarification, leaving the private sector to suffer for the state’s indecision.
ISP executives, including those from WorldLink and Vianet, maintain that they have acted in good faith, following the spirit of the 2018 agreement. They argue that comparing private ISPs to the state-owned Nepal Telecom—which uses a different billing ratio—is fundamentally unfair. They stress that they cannot pay taxes on revenue they never collected from customers, especially when they already absorbed significant costs years ago to keep internet prices stable.
The dispute has now reached the courts, with ISPs seeking a legal remedy against what they describe as an “administrative overreach.” As the industry awaits a judicial verdict, the sentiment among service providers remains one of deep frustration. They feel they are being forced to pay for a “poison they never consumed,” hoping the government will eventually correct its technical definitions and provide the justice the industry needs to survive.
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