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Kathmandu Wednesday June 06, 2001 Jestha 24, 2058.
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Create
conducive environment for IT industry
By Ram Sharan Sedhai
KATHMANDU, June 5 - The government has made an
inappropriate decision by increasing Tax Deductible at Sources (TDS) on the sales income
of bandwidth providers by 500 times, leaving the Internet Service Providers (ISPs) in
utter confusion.
On the one hand, the government pledges to extend every
support for the development of the Information Technology (IT), but on the other, it
discourages the industry by imposing such a high amount of tax.
The ISPs are already heavily taxed and the government’s
decision to raise TDS on the sales income of bandwidth providers by 500 times will be a
very heavy blow to ISPs.
The ISPs have to pay 4 per cent royalty, 2 per cent rural
telecom development charge, 10 per cent Value Added Tax (VAT) and 25 per cent corporate
tax. Besides, they have to pay Rs 250,000 as licence fee for a period of five years, with
a provision of renewing every five years for a maximum of five times paying equal amount
as renewal fee each time.
Apart from this, their operation cost is also high as they
have to provide uninterrupted service for which it calls for a large number of employees
and other resources. Though there are 13 licences, only 7 are actively in the business,
they too having a very small number of subscribers due to a limited market.
In India, the licence fee for an ISP is a token Re.1 and
all the taxes they have to pay does not exceed 7 per cent.
Verbally, the bandwidth providers have to pay the tax, but
due to the lack of agreement on double taxation between those countries of the bandwidth
providers and Nepal, the ISPs are forced to pay the tax as the foreign companies cannot
deduct the tax in their earning in the respective countries.
The Department of Tax decided to raise the tax by 500 per
cent at the beginning of the current fiscal year and the ISPs came to know about it only a
few weeks ago. As the current fiscal year is at its last, they hurried to pay the tax and
were shocked to know the phenomenal increment in the tax.
The ISPs tried their best to convince the tax officials of
the negative impact of the fivefold rise in the tax, but the officials were adamant on
their stand of raising it by 500 per cent. Later on, they met the Finance Minister Dr Ram
Sharan Mahat, however, the problem has not been solved yet.
The tax officials might have thought that the tax has to be
borne by the bandwidth providers so the ISPs have nothing to do with the increment. It may
be true theoretically, but in practical, it is not possible because the satellite
companies will definitely raise the bandwidth charge at least by 20 per cent if they have
to pay the increased amount.
The reason behind the imminent rise in bandwidth fee is
that the satellite companies are operating in a very thin margin of profit. There is neck
to neck competition between satellite companies. Hence, the profit margin is slim. There
is another option: they can stop providing bandwidth to the Nepali ISPs.
It indicates that the possibility of bandwidth fee rise is
sure to take place, resulting an increasement in the internet and e-mail charges in
proportion to the bandwidth fee rise.
As the number of internet and email subscribers is only
around 20,000, the main reason behind it can surely be blamed to the high telephone tariff
and internet and e-mail charges. Hence, if the tax is raised to 15 per cent from 3, it
will definitely discourage the users.
Anyway, the solution is simple. If the government wants to
promote IT, it has to lower the tax to the existing level and if it simply wants to
collect more revenue, it can stick to its stance. But it will push the already slow IT
development a few years back.
The entrepreneurs are ready to pay the 3 per cent tax this
year. They have also warned that if the tax is not reduced, they will be forced to stop
their expansion project in the beginning and close down the industry, according to them.
Now it is up to the government whether to contribute to the
growth of the IT industry or to discourage it.
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