The Ministry of Communications and Information Technology (MoCIT) finally effected what it had been warning social media operators for a long. On August 27, MoCIT issued a notice requiring social media platforms operating in Nepal to register with the ministry within the next seven days as well as appoint key personnel—a local contact, grievance officer, and compliance officer. Non-compliance meant the government would progressively deactivate them. On Thursday, it brought the ban into effect, releasing a list of 26 social media platforms facing deactivation.
The move has sparked controversy and online ridicule. Some see it as unwarranted. Some an empty threat since it was the fifth time such an ultimatum was issued. But there is an observable lack of meaningful discourse on the matter, with many quickly dismissing the move as ‘repressive’, despite the upsides and even necessity of the regulations.
Paying their fair share
Social media platforms, like Facebook, Instagram, WhatsApp, TikTok, YouTube, etc., operate globally, generating billions of dollars in annual revenues. However, they pay little to no tax as they lack a physical presence in many countries they operate.
In Nepal, consumers spent around NRs 2.76 billion ($19.50 million) on these platforms in the fiscal year 2023/24. From this, the government generated NRs 415 million in tax revenue, which included NRs 358.5 million in Value Added Tax (VAT), which are borne by the consumers, and NRs 58.1 million through the 2% Digital Services Tax (DST). Revenue from DST accounted for roughly 14% of the total government revenue.
| The DST is a direct tax applied to the transaction value of the digital service used by Nepali consumers and imposed by non-resident entities. It is not passed on to the consumer and is not included in the invoice amount, which makes it the only income from such non-resident entities. |
While the imposition of VAT and DST marks a step toward regulating these digital giants, they still remain outside the purview of the country’s income tax framework.
Globally, this issue has been under scrutiny for years. In 2020, the OECD/G20 Base Erosion and Profit Shifting Project published a paper which argued that digital and consumer-facing MNCs derive substantial value from user participation and market jurisdictions, even without a physical presence, and must fairly allocate a portion of their global profits in those jurisdictions. It also outlined a framework for fair taxation and baseline regulations for them.
While the Nepal government’s move isn’t exactly in line with OECD procedures, it stems from a global need and isn’t simply a political move, as compared to prevailing narratives and understanding.
India, for instance, didn’t wait for a coordinated global response and implemented frameworks that Nepal is considering only recently. One is the equalisation levy—from the idea of levelling the field for domestic businesses and foreign digital companies. It was introduced in 2016 at 6%. The scope was expanded to e-commerce operators in 2020, with a 2% levy. The recent Income Tax Act envisions further expanding the scope to Software as a Service (SaaS), digital consultation, and AI services.
Coming back to Nepal’s reported transaction value, the value reflects direct earnings from Nepali businesses spent on ads, promotions, boosts, service and platform access, etc. The figure will likely increase in the coming days. Additionally, we know this is not the only source of revenue, with revenues coming from collecting and processing user data, but their pricing and revenue remain opaque. Establishing local contact offices could result in transparency in reporting of revenues and compliances on direct taxes like DST, while also paving the way for earnings-based taxation.
Beyond taxes: Social considerations are key
The reason why these companies are required to follow domestic regulation isn’t only concerned with financial motivations but more importantly with social considerations: misinformation, mental health, child abuse, online fraud, data privacy, and can extend as far as to national security. These real-world effects are extensive and occurring globally.
There is also a question of fairness: should international social media/online companies be exempted from domestic rules, regulations and laws? A factory, for example, is required to register and gather permits from different government departments, local and national, because during its operation, it may produce byproducts that may harm society in different ways. Social media platforms, by their very design, are no different as they mould and shape social discussions and dynamics. Returning to India’s example, the country’s equalisation levy sets a precedent.
At the same time, India also has regulations in place requiring contact offices and appointment of three key personnel and rules on content moderation and compliance.
These measures are critical. Social media had 14.3 million users in Nepal as of January 2025. The number of accounts equates to nearly half of the total population, with 72.8 % of adults (ages 18 and above) using it.
With nearly three-fourths of the voting population actively using social media, it is in the nation’s interest to place safeguards against critical and pervasive byproducts such as misinformation.
For better or worse, the prevalence and widespread adoption of social media have also changed the country’s socioeconomic dynamic. Now the onus lies on the government to shape policies in response to changing socioeconomic behaviours driven by algorithms that may not align with national priorities and economic plans. One example is the growing content economy and its influence on social dynamics, which has also made oversight an increasingly relevant issue.
To address these challenges, both regulations and taxation play an equally critical role.
What is this unpopular decision based on
The government is enforcing the current regulatory measures based on the directive introduced in 2023, which was issued under the authority granted by Section 79 of the Electronic Transaction Act, 2006 (2063).
It wants companies to register with the relevant ministry, set up a local contact point, appoint a grievance officer, and assign an oversight official to ensure self-regulation. Additionally, platforms must support criminal investigations, remove unlawful content, and comply with Nepali laws.
Yet despite several notices for registration, it has either fallen on deaf ears or there are lapses in government correspondence. Five platforms, including Viber and TikTok, have already complied with the requirement.
In its last notice, the government even cited the recent Supreme Court verdict, which instructed the government to regulate social media platforms in the country. A full bench of the Court had made the ruling, highlighting that the existing directive is inadequate for effective regulation and suggested a separate law would be more appropriate to ensure that freedom of speech and expression is not infringed.
Despite calls for a separate law, many are pointing out that the government has instead opted to enforce them through a directive. While the bill related to regulating social media has been languishing in the parliament.
There are some pressing questions: Does the need for such regulations require a separate act? What happens if social media companies continue to ignore the rules, even after formal legislation is passed? And why are they not responding to the government’s repeated calls—is it due to the absence of a clear legal framework?
Minister for Communications and Information Technology Prithvi Subba Gurung, who has frequently expressed frustration over large social media companies’ disregard for the government directives, views the non-compliance as their arrogance.
In another recent Supreme Court verdict, the court has made another ruling relating to bringing social media companies within the income tax framework of the country. The full judgment has yet to be released.
Elvish Mainali, intern at Farsight Impact, provided research support for this work.
