Rashtra Bank requests the elimination of the VAT charge on electronic payments.
Customers now bear an additional cost as a result of value added tax (VAT) levied by the government through the current fiscal year's budget on electronic payments (digital payment and clearing). The Ministry of Finance has been asked to remove this arrangement by Nepal Rastra Bank, since they believe it will deter fintech from contributing.
According to Rashtra Bank, the government should support the growth and expansion of the electronic payment industry by providing a variety of facilities; however, by imposing taxes in the opposite direction, the problem has not been resolved. It is argued that the current VAT regime will hinder the development and growth of this business since it will increase the financial burden on clients and other stakeholders due to the high costs associated with this industry's investments and service fees.
Customers now bear an additional 13% of the burden as a result of this arrangement. The price was raised on July 1st so that the client would be responsible for paying all costs because banks are not registered for VAT and are therefore unable to issue VAT bills. The clearing and settlement services providers, NCHL and Phone Pay, have raised their rates by thirteen percent. For interbank financial transfers, Phone Pay used to charge Rs 10, but as of right now, it is charging Rs 11.30 paise. NCHL now charges 9 rupees, 4 paise, instead of the previous 8 rupees.
Customers now bear an additional 13% of the burden as a result of this arrangement. The price was raised on July 1st so that the client would be responsible for paying all costs because banks are not registered for VAT and are therefore unable to issue VAT bills. The clearing and settlement services providers, NCHL and Phone Pay, have raised their rates by thirteen percent. For interbank financial transfers, Phone Pay used to charge Rs 10, but as of right now, it is charging Rs 11.30 paise. NCHL now charges 9 rupees, 4 paise, instead of the previous 8 rupees.
Customers now bear an additional 13% of the burden as a result of this arrangement. The price was raised on July 1st so that the client would be responsible for paying all costs because banks are not registered for VAT and are therefore unable to issue VAT bills. The clearing and settlement services providers, NCHL and Phone Pay, have raised their rates by thirteen percent. For interbank financial transfers, Phone Pay used to charge Rs 10, but as of right now, it is charging Rs 11.30 paise. NCHL now charges 9 rupees, 4 paise, instead of the previous 8 rupees.
While the Central Bank is supporting fintech in the banking sector, the government has not corrected it by implementing VAT, according to Mahaprasad Adhikari, Governor of Nepal Rastra Bank. The government has previously been informed that this work shouldn't be done. "The fintech sector contributes significantly more to the economy than the government's VAT revenue, and there was no discussion with stakeholders, including Rashtra Bank, when this system was introduced," the governor official with Kantipur stated. We are requesting that the government fix the system because of this.
The state is making significant overseas infrastructure investments. Here, the private sector is assuming control. The state has not made many investments in the fintech industry. According to the official, taxes shouldn't be used as a deterrent for the state to support this industry. "The fintech industry has peaked." Major mishaps or accidents have not happened yet. The governor officer continued, "The primary challenge at this point is to keep it at the same level. International electronic payments have already begun during fintech development, and national switch construction is almost complete."
The government has not begun any action in this area, despite requests for VAT refunds from the National Bank and other organizations. The government has not made a decision, according to Finance Minister Bishnu Prasad Paudel, despite recommendations from many organizations regarding the current arrangements governing VAT in electronic transactions. "I am hearing that there are various suggestions regarding the new tax policy," he stated. He does, however, assert that the government is supporting the industry of electronic payments. "The government is encouraging the development and expansion of this sector," he stated.
In Nepal, there is no VAT applied on financial transactions. Banks and other financial institutions are therefore eligible for VAT exemption. on addition to Nepal Clearing House, Phonepay, and other digital payment firms, the government also placed Clearing and Brokerage (PSO), the payment system operator, on the list of enterprises free from value-added tax. Nine of these businesses were not VAT registered for this reason. However, PSPs, or payment service providers, are already covered by VAT.
In the June 15th Economic Bill-081, which was introduced in Parliament, the then-finance minister Barshman Pun struck clearing houses and other businesses from the list of services that qualified for VAT exemption. In addition, the government has begun levying a 13 percent value-added tax (VAT) on the operations of these corporations that run the payment system. Rashtra Bank is among the stakeholders who have urged the government to address this, citing the high cost of electronic payments.
One of the operators of the payment system, National Clearing House (NCHL), has written to the government requesting the removal of the provision. The CEO of NCHL, Nileshaman Pradhan, stated that the imposition of VAT by the government should not be used as a deterrent to the advancement and growth of the electronic payment system. VAT may convey the wrong message, he added. "Now the government should encourage stakeholders, consumers, and others as a matter of policy by giving various discounts and facilities," he said.
According to Pradhan, the government has not addressed the growth and development of the electronic payment industry by imposing taxes or offering incentives for at least the next five years. This industry is now expanding by more than 50%. Pradhan continued, "In the current situation, as consumers are getting used to electronic payments, the growth cannot be stopped due to a small reason." He stated that no reason should be permitted to be influenced in such a situation. However, these kinds of actions send the wrong message. Accordingly, he added, policies and initiatives shouldn't be made mandatory even if they aren't completed or the state won't make a lot of money from them. The government of Nepal, along with Rashtra Bank and other organizations, is promoting electronic payments. "In other countries where electricity payment is in the same situation as ours, the government itself allocates a large budget and gives various discounts and facilities to not only the consumers but also the stakeholders," Pradhan continued, "so it should be encouraged for a few more years." He recommended that the government take it into consideration, pointing out that the growth of e-commerce will bring in more money than levying a value-added tax in this area. According to Pradhan, by supporting this industry, a large number of institutional (business) clients might be included in the tax net.
The government has prioritized the growth of the nation's digital economy through the fullest application of information technology in this year's budget. Within the five strategies adopted to improve the business environment of the nation, there are programs in the budget that allow earned income to be reinvested abroad after technology is transferred. These range from streamlining public body service delivery on the basis of "business process re-engineering" to easing the burden on the information technology-based industry.
The government has mentioned in the budget ambitious programs like fellowship and internship for IT manpower, construction of state-of-the-art IT hub, and making public services faceless, paperless, and contactless through e-governance, considering the current fiscal year as the departure year of the information technology decade. There are rumors that 2081–2091 will be recognized as the decade of science and technology as well. Experts claim that by putting VAT on electronic payment transactions, the government has gone against its own directives.
"On the one hand, we are talking about advancing the digital economy and digital payment system; on the other hand, we are increasing the burden of taxes instead of simplifying the process." Fintech Alliance Nepal's founding president, Sanjiv Subba, stated: "The state will save billions and trillions of dollars if the digital payment system is implemented." The costs are enormous, ranging from printing paper notes to transporting, storing, and printing check books. Not only should digital payments receive tax benefits, but they should also receive subsidized subsidies. According to Subba, the government shouldn't reverse course on policy at a time when this industry needs to be supported and advanced. We are creating a digital economy, so there is currently no justification for taxing this service. The service must be progressively expanded to include the general public now that it has reached the Sahariya high class, he stated.
Lokraj Sharma of National Payment Solutions stated at a program last Thursday that even in many foreign places, cash payments are not possible and that Paiha must pay extra fees. In Nepal, digital payments require the payment of VAT. In the end, the reverse happened. He claimed that if taxes were to be levied, they ought to be applied to cash transfers since doing so would boost tax receipts and promote openness. VAT is not yet applied to digital transactions. Samasodh Griha, or the clearing house, was once included in the list of places exempt from VAT, but it has since been deleted. However, the list of VAT exclusions still includes financial transactions, according to e-Services CEO Jagdish Khadka.
E-services are not covered under the Banks and Financial Institutions Act (BAFIA). The Payments and Exchange Act applies to us. In Bafia, financial transactions are defined. But the Payment and Sale Act does not contain it. Khadka claimed that although the law is confusing things, the budget lacks a clear structure.
In Nepal, payment system operators have been used as clearinghouses and brokers for electronic payments. The first organization founded for this purpose is NCHL. Prior to that, Rashtra Bank completed the work on its own. The aforementioned job was included in Schedule 1's non-VAT list under Section 5(3) of the Value Added Tax Act 2052 because it comes under the financial services category. Later on, NCHL initiated that task.
Through the Economic Bill of the financial year 070/71, in which the clearing house (clearing house) service was also considered as a financial transaction and VAT exemption was given, the government included the service offered by NCHL in the list of non-VAT transactions under the Value Added Tax Act. Other payment service providers thereafter appeared. They were also exempt from VAT. However, the budget for this year eliminated these businesses off the list of VAT exemptions.
