Chinese Airlines Accused of Evading Rs 4 Billion VAT in Nepal

In a growing dispute over tax compliance, Chinese airlines operating in Nepal have allegedly failed to pay Rs 4 billion in Value Added Tax (VAT), collected from their operations in the country. Despite Nepal’s repeated efforts to enforce compliance, Chinese carriers continue to resist registration with Nepal’s VAT system, citing opposition to the policy’s principles.

Since the introduction of VAT on international air services in Nepal’s Finance Act 2080 BS, the majority of international airlines have complied by registering for VAT and paying taxes. However, Chinese airlines—Air China, China Southern Airlines, China Eastern Airlines, and Sichuan Airlines—have not followed suit.

The airlines are accused of lobbying against the policy through diplomatic channels. A source at Nepal’s Ministry of Finance disclosed that the Chinese Embassy in Kathmandu has exerted pressure on the Nepalese government, claiming that the VAT imposition contradicts international principles.

A senior Finance Ministry official reiterated Nepal’s position: all foreign airlines operating in Nepal must comply with the nation’s tax laws. The official emphasized that Nepalese companies operating abroad adhere to foreign laws, and reciprocity is expected.

“Special facilities cannot be provided to Chinese airlines alone,” said the official. “Nepal’s tax system applies to everyone equally.”

The Director General of the Inland Revenue Department (IRD), Ram Prasad Acharya, affirmed that discussions with Chinese airlines are ongoing. He disclosed that the airlines proposed paying the VAT without registering for it, a suggestion deemed illegal by the IRD.

The Chinese Embassy reportedly sent multiple communications to the Nepalese government urging exemption for its airlines. Sources reveal that the embassy even warned of potential repercussions for Nepal’s tourism and bilateral relations if the VAT is enforced.

“China’s embassy sent letters before the budget, claiming that taxing international air tickets contradicts basic principles and laws,” a ministry source stated. “Even after that, they have continued lobbying to prevent their airlines from complying.”

Under the latest financial bill, VAT is required not just from airlines flying directly to Nepal, but also from offline airlines—those transporting passengers originating from Nepal via connecting flights abroad. This reform ensures that VAT is levied on all air ticket purchases made within Nepal.

To assist with compliance, the International Air Transport Association (IATA) established a system to charge VAT on tickets originating from Nepal. This move has led many global airlines to register and pay VAT in the country.

The Chinese airlines’ non-compliance raises significant concerns about Nepal’s ability to enforce its tax laws and ensure fairness among foreign operators. The dispute also risks straining Nepal’s diplomatic and economic relations with China, one of its largest trading partners and a significant investor.

Nepal’s government appears resolute in enforcing VAT compliance. As Director General Acharya stated, “Chinese airlines must follow Nepal’s legal procedures. Payment without VAT registration cannot be considered lawful.”

For now, the Rs 4 billion in VAT remains unpaid, while negotiations continue. Whether Nepal can enforce its tax laws without jeopardizing relations with its northern neighbor will be a critical test of its fiscal and diplomatic independence.

Input From Onlinekhabar.com