Chaos ensued on Thursday evening when internet services across the country were abruptly interrupted for several hours. This happened after Indian telecommunications company Airtel stopped upstream services to Nepali private-sector internet service providers (ISPs) over non-payment of dues, throwing the country into a communications crisis.

"Airtel, a leading telecom provider in India, has cut upstream services to Nepal from today [Thursday]," said Sudhir Parajuli, chairman of the president of Internet Service Providers' Association Nepal.

The disruption started at around 5 pm, but services were restored after around five hours.

According to officials, Airtel agreed to restore the service after the Nepal Telecommunications Authority, the regulator, promised to sort out the payment issue ‘responsibly.’

WorldLink Communications Pvt Ltd, a major private sector ISP in Nepal, in a notice issued at 10:50 pm said: “We apologise for any inconvenience caused by the current issue with the international bandwidth affecting most ISPs. We are working to restore the services.”

Earlier, after issuing multiple verbal warnings, the Indian company had last week written to Nepali ISPs to settle the dues immediately or face disruption of services. Nepali ISPs and the government are in a long-running dispute over taxes, which the ISPs claim do not apply to them as decided by a former parliamentary committee and then by the government.

According to Parajuli, who is also a board member of Subisu Cablenet Ltd, Airtel provides around 70 percent upstream services to Nepal.

"Nepali ISPs owe Airtel more than $30 million (Rs4.30 billion)."

Internet services provided by the state-owned Nepal Telecom, however, were unaffected. The disruption has mainly affected fixed broadband users.

"Though we source internet bandwidth from Airtel, we don't have a problem in our services," said Hari Dhakal, spokesperson of Nepal Telecom. "We don't have any payment issues with Airtel."

Nepali ISPs on different occasions had warned that their services could be disrupted as the government has not provided them foreign exchange to pay their foreign vendors.

It has already been a year since the ISPs defaulted on payments for upstream services.

The problem stems from policy instability of the government, which first exempted the ISPs from paying taxes on non-telecom components like web services, co-location, hosted services, disaster recovery, managed services, data centre, and cloud services.

Later, it ordered the ISPs to pay the taxes. The private companies, however, are reluctant to pay up saying the government had officially exempted them from the taxes.

The Public Accounts Committee of the previous parliament had ordered the government that the ISPs should be exempted from paying taxes on non-telecom components.

Following the order, in a letter dated July 15, 2018, the licensing department of the Nepal Telecommunication Authority wrote to the Inland Revenue Department requesting not to subject the ISPs to telecommunication charges for non-telecommunication services.

The parliamentary committee had said that ISPs do not have to pay royalties and Rural Telecommunications Development Fund charges for three fiscal years—2017-18, 2018-19 and 2019-20.

After the Auditor General, the constitutional body and the supreme audit institution of Nepal, pointed out that such fees should not be waived, and instructed recovery of the charges, the government wrote to the ISPs to clear the dues.

“The current Public Accounts Committee has ordered us to recover the dues from the ISPs. Unless they clear their dues, the ministry will not make recommendations for foreign currency,” an official at the Ministry of Communication and Information Technology told the Post on condition of anonymity.

While the Public Accounts Committee of the past parliament had ruled that internet service providers should be exempted from paying taxes on non-telecommunications components, the Ministry of Communication and Information Technology rejected the ruling and declined to provide foreign exchange to the companies.

The ISPs do annual transactions worth around Rs27 billion and pay more than Rs9 billion in revenue to the government under eight various headers.

“The government needs to take this sensitive issue seriously,” Binay Bohra, owner of Vianet Communication, an internet service providing company in Nepal, told a press meet last Friday.

Parajuli, president of Internet Service Providers' Association Nepal, said that the Indian upstream service providers have sought a letter of bank guarantee after Nepali ISPs were unable to pay their dues in foreign currency.

However, the Nepal Telecommunication Authority, the regulatory body, has asked the central bank not to provide bank guarantee letters either.

The Indian vendors had in December last year also threatened to suspend services starting January 1, 2024. However, the issue remains unresolved following a change in the government.

In December, officials from two Indian telcos, Airtel and Tata, visited Nepal to discuss the issue as the dispute over the payment of tax dues escalated between the government and the ISPs.

Around 10.6 million people use the internet in Nepal through 20 ISPs in the country, including the state-owned Nepal Telecom. ISPs say they provide direct employment to more than 15,000 people.