SC Clears Way for NTA to Recover Royalty from ISPs

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The Supreme Court has scrapped all eight writ petitions filed by Worldlink Communications, an internet service provider (ISP), against the government’s decision to impose the Rural Telecommunications Development Fee (RTDF) and royalty charges on maintenance fees collected by the ISPs. A division bench of Justices Hari Prasad Phuyal and Dr Nahakul Subedi rejected Worldlink's claims by scrapping the petitions on May 12. With the SC's ruling, the government can now collect royalty and RTDF from Worldlink Communications which the ISP had previously refused to pay. The SC verdict is expected to add billions of rupees to the state coffers from other ISPs as well. “As the SC has scrapped the writ petitions, the ISPs must now pay the dues,” Govinda Prasad Ghimire, information officer at the Supreme Court, told New Business Age.

According to the Office of the Auditor General, the government has been unable to collect royalty revenue on maintenance charges from ISPs since the fiscal year 2015/16. ISPs, including Worldlink Communications, were found to have evaded the tax by misinterpreting the law. However, the ISPs were paying the RTDF and royalties from the fees collected from customers for providing internet services. There has been a dispute between the government and ISPs about whether to consider the maintenance service provided by the ISPs as a telecommunication service and whether to pay a certain percentage of the fees collected by the ISPs to the RTDF and as government royalties. The government has been considering maintenance as a telecommunication service and has been asking the ISPs to pay a two-tier tax.

The Internet Service Providers Association of Nepal (ISPAN) claims that the ISPs have been regularly paying royalties and RTDF from income derived from telecommunication services in accordance with the Telecommunication Act, Telecommunication Regulations, and Rural Telecommunication Development Fund Regulations. However, it maintains that there is no legal provision to pay royalties and RTDF from income generated from non-telecommunication services such as maintenance services. The dispute led to a disruption in Internet services across the country on May 2 after India’s Airtel, which provides bandwidth to Nepali ISPs, stopped providing bandwidth for six hours citing non-payment of dues by the Nepali ISPs. The ISPs were unable to clear their outstanding dues to Airtel because the Nepal Telecommunications Authority (NTA) had not recommended foreign exchange facilities to them for a year, arguing that they must first pay the RTDF and royalty. Airtel resumed providing bandwidth after assurances from the government and the ISPs that they would pay the dues.

The Ministry of Communications and Information Technology had formed a study team led by Joint Secretary Gaurav Giri to investigate tax evasion by the ISPs. The study team determined that nine ISPs were liable to pay Rs 3.64 billion in royalty revenue and RTDF to the government, with Worldlink Communications alone responsible for Rs 1.96 billion. In August last year, NTA, the regulatory body of the telecommunication sector, published a list of 48 ISPs for not paying the royalty amount and taxes under the heading of the RTDF. According to a report published by the NTA last December, 77 ISPs had deposited more than Rs 1.67 billion. There are currently 128 internet service provider companies and 23 network service provider companies registered in Nepal. 

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