Heavy Tax Burden Hits Telecom Companies’ Earnings

The revenue of telecom service providers in Nepal has declined by around 28 percent over the past seven years, largely due to high taxes and policy-related issues.

According to the Nepal Telecommunications Authority (NTA), the combined income of the two major telecom companies stood at Rs 98.71 billion in Fiscal Year 2017/18 but dropped to Rs 71.21 billion in the last fiscal year. The decline has been consistent in recent years.

The fall in income has directly affected profitability and investment. Experts say that the telecom sector is heading toward crisis as companies have been unable to expand their revenue base. They warn that without immediate policy reforms, the industry could face deeper challenges. Many argue that due to shrinking income and profits, necessary investments in infrastructure such as 5G have not been possible.

Former NTA Chairperson Bhesh Raj Kandel said telecom services should be categorized as essential services, but in Nepal, they are taxed as if they were luxury goods. “Telecom companies currently pay 30 percent corporate tax, while the rate for other sectors is only 25 percent,” he said, stressing the need to review tax rates imposed on the sector.

Nepal Telecom (NT) attributes its declining income to policy complications, increasing use of over-the-top (OTT) services, and high renewal fees. The company said excessive taxation has further reduced profits.

According to NT, the company earned Rs 38.73 billion in FY 2024/25, with a net profit of only Rs 2.66 billion. In the previous fiscal year, it had posted a profit of Rs 6.23 billion. The sharp decline was largely due to heavy expenses on GSM license renewal—amounting to Rs 20 billion last year—and various taxes under multiple headings.

Private telecom operator Ncell also reports a similar situation. The company has stated that telecom firms are among the highest taxpayers in the country. Former Ncell CEO Jabbor Kayumov previously said that excessive taxation and fees have heavily squeezed profits. According to him, Nepali telecom operators pay between 50 and 60 percent of their total income to the government in the form of taxes and fees—a rate significantly higher than in most countries.

The telecom sector’s contribution to Nepal’s gross domestic product (GDP) has also declined. It currently accounts for only 1.2 percent of GDP and 3.4 percent of total government revenue. Ncell reported revenue of Rs 32.48 billion in FY 2024/25, of which Rs 16.98 billion—or 52 percent—was paid to the government under 13 different tax and fee categories.

In its financial report, Ncell stated, “Due to declining revenue and high fees, we have been unable to make additional investments as expected. We have also suggested the government to review the existing tax structure and rates in the draft Telecommunications Bill. If taxes remain at current levels, the sector will struggle to sustain itself.”

The company said it paid nearly Rs 17 billion last fiscal year under headings such as GSM and ISP license fees, TSC, OT, net VAT on sales, customs duties, TDS, advance tax, royalty, Rural Telecommunication Development Fund (RTDF), frequency charges, social service contributions, and others.

According to NTA, telecom companies earned Rs 68.5 billion in FY 2023/24 and paid Rs 37.7 billion in taxes and fees to the government.

Currently, telecom companies pay a 13 percent value-added tax (VAT), 10 percent telecom service charge, 4 percent royalty, 2 percent Rural Telecommunication Development Fund (RTDF) contribution, and 2 percent ownership tax on SIM cards and landlines, in addition to other fees and advance taxes.

Experts say Nepal has one of the highest telecom tax rates in the Asia-Pacific region. In comparison, telecom operators in China pay 6 percent VAT and 25 percent corporate tax, in India 18 percent GST and 25 percent corporate tax, and in Thailand 7 percent VAT and 20 percent corporate tax.

According to the GSMA Mobile Connectivity Index 2023, Nepal ranks 119th globally. The report notes that countries with lower telecom taxes tend to achieve higher investment levels, faster network expansion, and better service quality.

Studies by the World Bank and the International Telecommunication Union also show that every 10 percent increase in broadband penetration boosts a country’s GDP growth rate by 1.3 percent.

Stakeholders have therefore called for the removal of sector-specific taxes such as the 10 percent telecom service charge, 2 percent ownership tax, 4 percent royalty, and 2 percent RTDF contribution. Nepal Telecom has also proposed, in its feedback to the draft Telecommunications Bill, reducing the corporate tax rate from 30 to 25 percent and capping the five-year license renewal fee—currently Rs 20 billion—at 8 percent of annual income. -- RSS