When the Oli government pulled the plug on 26 social media platforms on September 4, it tried to silence a generation. For Gen Z, this was more than a ban; it was a breaking point.

The official reason was to control misinformation and ensure accountability on those platforms. But the intention was to tighten the government’s grip on online spaces. The proposed Media Council Act and the Social Media Bill would give the state sweeping powers to remove posts and silence criticism in the name of regulation. The Asia Internet Coalition, representing global companies such as Meta, Google, Apple and Amazon, called these directives impractical and inconsistent with international standards. In letters sent in 2023 and 2024, the coalition warned that forcing companies to delete content within 24 hours could threaten freedom of expression and weaken Nepal’s democratic values.

The government reversed its decision only after tragedy struck. On the evening of September 8, as protests spiralled out of control, 19 young people lost their lives. What began as an outcry for better governance turned into a national crisis. The public outrage that followed forced Prime Minister KP Sharma Oli to step down, paving the way for an interim government led by former Chief Justice Sushila Karki.

What may surprise many is that several of these social media companies were already registered in Nepal and paying taxes, including VAT, to the Inland Revenue Department (IRD). Yet, the government demanded they register again with the Ministry of Communications and Information Technology (MoCIT) under new compliance rules.

This article explores how Nepal can encourage more tech companies to register and pay taxes under the existing framework of the Revenue Department, and discusses how these companies can contribute more to our economy and the potential benefits of a fair and forward-looking digital economy.

Over the past few years, the internet penetration rate in Nepal has increased exponentially. According to the Nepal Telecommunication Authority (NTA), there were an additional 2.25 million new Internet users in 2017 alone, translating into approximately 250 new users every hour. As of January 2024, Nepal was home to 13.5 million social media users, equating to 43.5 percent of the total population, including 15.4 million internet users. Likewise, the growing popularity of social media sites such as Facebook, TikTok and Instagram is one of the crucial drivers of internet adoption in Nepal.

Governments worldwide—including South Asia—have introduced the Digital Services Tax (DST) to bring these growing digital companies and their transactions into the mainstream tax system. India introduced a 6 percent equalisation levy in 2016. Pakistan introduced a fee for offshore digital services with a 5 percent levy on the gross amount. Sri Lanka is also in the process of implementing the DST.

Similarly, Nepal implemented the DST in 2022 under Section 20 of the Finance Act 2022-023. This was designed to ensure that all the non-resident entities providing digital services to consumers in Nepal contribute to the country’s revenue. This has further laid the framework for imposing a direct tax on the transaction value of the digital services provided by non-resident persons to consumers at a rate of 2 percent of the transaction value of digital services. Furthermore, the DST will be imposed on any foreign company operating in Nepal with annual transactions exceeding 3 million rupees. According to the 2024 amendment, if a company’s transactions exceed this threshold, the tax will be levied on the total transaction amount.

When the DST rolled out, only a few companies voluntarily stepped up and registered. As of January 2025, 20 foreign companies are registered, including Apple, Google, Microsoft, TikTok and Netflix, and have started paying DST for providing electronic services to consumers in Nepal. According to the Inland Revenue Department (IRD), companies including Microsoft, Google, Adobe, Netflix, Amazon and Apple paid Rs410 million (approximately $3.1 million) in DST and VAT in fiscal year 2023-024. Also, another source shows that in fiscal year 2022-023, after implementing the DST, eight companies recorded Rs700 million in transactions in just five months, contributing Rs109.4 million in taxes. These companies provide digital services like advertising, cloud services, over-the-top (OTT) platforms, software and more.

This number is increasing rapidly as the trend of registering companies and paying tax is growing. However, the journey has not been smooth. Time and again, different cabinet ministers and the tax department have asked these companies to register and pay their fair share of tax.

Way forward

In 2023, the government banned TikTok, claiming it disrupted social harmony. After nine months, the ban was lifted when TikTok’s South Asia division reached out to the ministry, promising to follow Nepal’s regulations and requesting a review. The ban, however, was not about taxes—it was largely about controlling content.

The government’s recent push to introduce a DST is a welcome step towards creating a fairer digital economy. Yet, its implementation poses policy, legal and institutional challenges. To move beyond ad hoc decisions and inconsistent enforcement, Nepal needs a more coherent, consultative and forward-looking approach.

One possible step could be the creation of a multi-stakeholder advisory council on the digital economy. This council could bring together representatives from government, industry and civil society to coordinate issues related to the digital economy and taxation, ensuring decisions are balanced and well-informed. Strengthening the capacity of the IRD is equally vital—through better training, digital tools and modern tracking systems to monitor non-resident transactions. A public dashboard could also enhance transparency and accountability.

In addition, the government could launch public awareness campaigns to promote voluntary registration and timely tax filing. Recognising and celebrating top taxpayers would further encourage compliance and foster a sense of civic responsibility among businesses operating in Nepal’s digital space.

As these discussions evolve, it is clear that Nepal needs stronger policy dialogue. The government, private sector and civil society must collaborate through open consultation before making decisions affecting millions. Unilateral actions, like sudden bans or rigid regulations, only deepen mistrust and resistance.

Returning to the Gen Z uprising, one might ask: Would this movement have erupted if the government had not forcefully banned social media platforms? Perhaps it was inevitable. The protests were not only about the social media platform ban but also a reflection of deeper frustrations—with corruption, poor governance and the lack of accountability. The social media ban, as mentioned earlier, was simply the final spark in a long-simmering fire.