What is the Problem of Royalties and RTDF that Push Nepal’s Internet Sector into Crisis 

What is the Problem of Royalties and RTDF that Push Nepal’s Internet Sector into Crisis Currently, a dispute is raging between the internet service provider and the regulator, the Nepal Telecommunication Authority, regarding the unduly large amount. Internet service providers, who have invested billions and prepared the infrastructure of digital services with the burden of debt, are going through a life-and-death crisis due to this dispute.
 
On the one hand, the Ministry of Communication and Information Technology has stopped the currency recommendation of service providers who have to pay foreign companies for bandwidth due to non-payment of the amount due. On the other hand, citing the same reason, the Telecommunication Authority is in the position of not renewing the license without paying the arrears. On the other hand, the service providers are claiming that they have paid all the amounts due according to the rules and that no amount has yet to be paid. What is the root of this dispute? Today, we are discussing this topic.
 
The beginning of the controversy
 
This dispute between internet service providers and authorities is not new. But now it has reached its climax. This dispute starts with the letter sent by the Ministry of Communication and Information Technology to the Authority on October 9, 2080. On that date, the ministry referred to an investigation committee and wrote to the authority to study and investigate all the financial years after all the service providers started their services after taking the license and immediately collect the exempted royalty, revenue, and RTDF amount.
 
Responding to the authority’s letter, the internet service provider company Worldlink informed us that it has paid the entire amount of royalty and rural telecommunication development fund through a letter dated October 19. Along with this, internet service provider companies started doing things like issuing announcements promising that they were ready to pay royalties and RTDF fees as per the law.
 
But the problem was not solved. There was a risk that the Internet service would be stopped nationwide if the Ministry of Communication did not give a dollar recommendation in May because the service provider had not disclosed the amount to be paid. The service providers could not pay the upstream provider company for months without the Ministry’s recommendation. This made the problem worse. 
 
 
The reason for stopping the recommendation was the same: the dispute between the government and the service provider regarding whether or not rural telecommunication fund fees and royalties should be charged on the fees charged by the service provider for non-telecommunication services such as support charges, maintenance charges, technical charges, and monitoring charges.
 
The root of the dispute
 
Through the financial year 2075/076 budget statement, the then KP Sharma Oli-led government announced to imposition of a one-time 13 percent telecommunication service fee on Internet services, effective July 1, 2075. At that time, this decision was criticized a lot. Before that, such a fee was 11 percent on the telephone but zero on the internet.
 
Accordingly, a committee was formed under the Ministry of Communication and Information Technology to adjust the fees. Based on the recommendations made by the said committee, Baskota made a ministerial decision that up to a 50% maintenance fee could be imposed on the bill for providing internet service, and no telecommunication service fee would be imposed on it.
 
To implement the ministerial decision, the Ministry of Finance, on the recommendation of the Ministry of Communications, submitted a proposal to the Council of Ministers to amend the Telecommunication Regulations. Based on the same proposal, the Council of Ministers meeting held on May 23, 2076, along with the amendment of the regulations, decided to give a discount on the telecommunication service fee for 2075–76.
 
Before that, there was a provision in the regulation that no fee could be charged for the maintenance of telecommunication and internet services. Through the amendment, the maintenance fee was defined so that the telecommunication service fee was not charged.
 
 
And they were ready for the agreement made in the name of price adjustment, thinking that even the royalty and rural telecommunication development fund fee, which is only applicable to telecommunication services, would not be included in such a maintenance fee.
 
 
Price adjustment: solution or more problems?
 
When the government was implementing a 13 percent telecommunication service fee, the average price of the cheapest package of fixed internet service providers in the market was around 1200 rupees. If we look at the general calculation within that, the service provider’s internet cost fee is 1002 rupees, royalty is 40 rupees, RTDF is 20 rupees, and VAT is 138 rupees.
 
Because even when the maintenance fee was maintained at 50 percent of the existing customer charges at that time, the total cost increased from 1200 to 1257 rupees, with royalty of 20 rupees, RTDF of 10 rupees, telecommunication service fee of 65 rupees, and VAT of 147 rupees.
 
In other words, even after the price adjustment, the internet service provider had to deduct 57 rupees from its profit, which was increased due to telecommunication service charges. Although it was uncomfortable during the price adjustment, the service providers agreed to bear the cost of three to four percent, which is higher due to telecommunication service charges.
 
After calculating the maintenance fee as a non-telecom service, it means that royalty and RTDF, which are only for telecommunication services, will not be charged. The authority itself, in its correspondence to the Internal Revenue Department on June 31, 2075, mentioned that telecommunication service charges will not be levied on non-telecommunication services other than internet services that provide internet services.
 
4 percent royalty, 2 percent RTDF, 10 percent telecommunication service fee, and 13 percent VAT. Overall, the state collects about 42 percent tax in the field of internet services. On top of that, a 30 percent income tax has also been levied on profits from Internet businesses like the liquor industry.
 
What is the interpretation of the court and parliamentary committee?
 
Telecommunication service charges are charged only for telecommunication services. Therefore, during the price adjustment, the government has made arrangements to bill up to 50% in the name of maintenance without incurring telecommunication service charges. Rural Telecommunication Development Fund (RTDF) and royalty cannot be levied only on telecommunication services under the title of not charging telecommunication service fees.
 
In Schedule 6(a) of the same regulation, telecommunication services are listed, but maintenance is not included. Four percent of the income for telecommunication services will have to be paid to the government as royalty.
 
Likewise, the meeting of the Public Accounts Committee held in October 2078, while discussing the 57th Annual Report of the Auditor General, decided to improve the policy for royalty collection according to the Telecommunication Regulations, to proceed with the process, to arrange for the bond in the Act itself, and to deduct the expenses and make adjustments.
 
According to Rule 26 and Schedule 6(a) of the Telecommunication Regulations regarding the telecommunication royalty payment, it was again directed to remove the payment. These decisions made by the Public Accounts Committee have been passed by the Federal Parliament in the form of the 20th, 21st, and 22nd reports.
 
On Baisakh 25, 2079, the committee again wrote to the Auditor General’s office clarifying the subject of the directive.
 
In this way, the fact that royalty and RTDF are not levied on maintenance services is a matter that has been accepted by the Ministry itself at one time.
 
In that case, the joint bench, including the then Chief Justice, gave an interim order saying that the maintenance charge would fall under non-telecommunication services and therefore not to collect royalty.
 
Risk of license revocation
 
Due to royalty and RTDF disputes, internet service providers who are under the control of the ministry and authorities are facing the risk of losing their licenses. It is said that such disputed arrears are around two and a half billion in total. Including Worldlink about 150 billion, Subisu and Vianet about 27/28 million, Tech Minds and Classic Tech about 24/24 million, Mercantile about 9.5 million, Netmax about 150 million, Web Surfer about 7.5 million, and Pokhara Internet about 3.5 million It is said.
 
On the 16th of Chaitra, the court issued a short-term interim order, calling both parties to resolve the issue of whether or not to issue the interim order without implementing the letter of authority.
 
Are royalties and RTDF charged for maintenance or not?
 
1. Telecommunication service is defined in Section 1(d) of the Telecommunications Act 2053. In that sense, maintenance is not called telecommunication service.
 
2. In the explanation of Section 26 of the Telecommunication Regulations 2054, the definition of the total income of the service provider and the type of telecommunication services are mentioned. which maintenance is not included in the telecommunication service.
 
3. Section 5 of the Rural Telecommunication Development Fund Regulation 2068 stipulates that the licensee must deposit two percent of the annual income received from the telecommunication services they operate into the RTDF every year. It also does not say that it is income from non-telecommunication services.
 
4. In the 20th, 21st, and 22nd reports of the Public Accounts Committee and also in the reports passed by the Federal Parliament, it has been decided that RTDF and royalty will not be levied as maintenance is a non-telecommunication service.
 
5. Even the Auditor General’s office has already cut the cost for one financial year by accepting that RTDF and royalty will not be applied to the maintenance income.
 
6. In the order given by the joint bench of the Supreme Court, an interim order has been given not to collect royalties and RTDF as it is seen that maintenance is not related to telecommunication services.
 
They argue that since RTDF and royalty are not charged on the bill issued by the Internet service provider to the customer, the service provider has not included that charge in its cost price.