Kathmandu-Despite legal requirements, Chinese airlines operating in Nepal have refused to register for VAT, collecting taxes from passengers but refusing to pay the government.
The Finance Act for fiscal year 2080/81 made VAT registration and collection mandatory for all airlines operating in Nepal. Following the introduction of detailed administrative procedures, all domestic and international airlines complied and began paying VAT, except for Chinese carriers.
Air China, China Southern, China Eastern, and Sichuan Airlines operate direct flights between China and Nepal. Despite being legally required to register, collect, and remit VAT to the government, these airlines have refused to comply.
Even without registration, they continue to charge VAT on tickets sold in Nepal. Passengers pay the tax, but the airlines keep the money in their own accounts instead of depositing it in the state treasury.
All companies are obliged to follow local laws while doing business in any country. Chinese airlines have ignored Nepal’s tax laws, reportedly with backing from their government. Nepal’s efforts to enforce compliance have faced resistance from the Chinese Embassy.
Last year, when the Inland Revenue Department and the Ministry of Finance pressed for payment, the Chinese Embassy sent a warning letter. A senior Finance Ministry official said the airlines were initially ready to comply after being cautioned about legal action, but the embassy intervened in a threatening tone.
Other airlines have since raised concerns. They pay VAT regularly and argue that exempting certain airlines creates an unfair business environment. Complaints have been submitted to the Ministry of Tourism and the Inland Revenue Department.
Chinese airlines eventually paid last year’s VAT dues. Although unregistered airlines are not allowed to pay VAT, they convinced the authorities by arguing that registration would take time since they are state-owned companies. The Inland Revenue Office accepted the payment, considering it beneficial for the state treasury and expecting them to register soon.
This fiscal year, however, the four airlines have already collected about two billion rupees in VAT, which remains in their accounts. The money, meant for the state, is instead earning them interest.
After the formation of the current government, Finance Minister Rameshwar Khanal reopened the issue. He requested detailed updates from the Inland Revenue Department, the Finance Secretary, and the head of the International Aid and Coordination Division.
