Revenue of Nepal’s telecom service providers has dropped by nearly 28 percent over the past seven years. According to the Nepal Telecommunications Authority (NTA), the two major telecom operators generated Rs 98.71 billion in revenue in FY 2017/18, which fell to Rs 71.21 billion in the last fiscal year - marking a continuous decline.

The fall in revenue has squeezed profits and weakened investment capacity. Sector experts say the lack of new revenue streams in recent years has pushed the telecom industry towards crisis. Without urgent policy reforms, they warn, the sector may face severe challenges. Due to shrinking income and profits, necessary investments in infrastructure - including 5G - have not materialised.

Telecom remains one of the most heavily taxed sectors in Nepal, with operators currently subject to multiple layers of taxation. They pay 30 percent corporate tax, compared to 25 percent for most other sectors.

Former NTA Chair Bhesh Raj Kandel said telecom services should be treated as essential, yet they are taxed like luxury goods in Nepal. He stressed the need to review the tax burden imposed on the industry.

In its annual report, Nepal Telecom (NT) stated that declining revenue has been driven by policy hurdles, rising use of over-the-top (OTT) platforms, and high licence renewal fees. It also cited heavy taxation as a major factor eroding profits. NT reported a profit of only Rs 2.66 billion out of Rs 38.73 billion in revenue in FY 2081/82, compared to Rs 6.23 billion in the previous year. A large portion of its income was spent on GSM licence renewal, which alone cost Rs 20 billion last year, in addition to mandatory taxes and fees.

Meanwhile, the telecom sector’s contribution to Nepal’s GDP has also declined, currently standing at only 1.2 percent, or 3.4 percent of total government revenue. Ncell reported Rs 32.48 billion in revenue in FY 2024/25, of which Rs 16.98 billion - 52 percent - was paid to the government under 13 different tax and fee categories.

According to Ncell, it has also submitted suggestions on the draft Telecom Act, calling for restructuring of taxes and fees. Without tax reform, the private-sector operator warned, the industry risks becoming unsustainable.

Ncell paid around Rs 17 billion last year in GSM licence fees, ISP licence fees, telecom service charge (TSC), ownership tax (OT), VAT, customs, TDS, advance tax, royalty, Rural Telecommunications Development Fund (RTDF) contribution, frequency charges, social service fees, and other taxes.

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

Telecom companies currently pay 13 percent VAT, a 10 percent telecom service charge, 4 percent royalty, 2 percent RTDF, and 2 percent ownership tax (on SIM and landline), along with multiple other fees and advance taxes.

Experts note that Nepal levies the highest telecom tax rates among 10 Asia-Pacific countries. In comparison, China charges 6 percent VAT and 25 percent corporate tax; India levies 18 percent GST and 25 percent corporate tax; and Thailand imposes 7 percent VAT and 20 percent corporate tax.

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

Global studies by the World Bank and the International Telecommunication Union show that every 10 percent increase in broadband penetration contributes 1.3 percent to GDP growth.

Industry stakeholders argue that sector-specific taxes - including the 10 percent telecom service charge, 2 percent ownership tax, 4 percent royalty, and 2 percent RTDF contribution - should be scrapped. Nepal Telecom, in its recommendations for the new Telecom Act, has also proposed reducing the corporate tax rate from 30 percent to 25 percent and lowering the Rs 20-billion licence renewal fee to 8 percent of annual revenue for five years.