For nearly two years, Indian upstream service providers, mainly Tata and Airtel, have faced delays in getting payments from Nepali internet service providers (ISPs). Both sides find themselves in a stalemate as they await the full text of the Supreme Court’s verdict on a tax and royalty dispute that is at the heart of the payment delays.

The situation has raised fears about a potential internet shutdown in Nepal, where reliance on Indian upstream providers is huge and alternatives from China remain limited, said a senior official at the Ministry of Communication and Information Technology.

“We are heavily dependent on Indian upstream providers. Switching to China isn’t something we can do overnight if there are disruptions on the Indian side,” the official said.

Minister for Communication and Information Technology, Prithvi Subba Gurung, told the Post that as ISPs sourced services from Indian vendors, they are responsible for clearing the dues. He attributed the delay to ISPs as well as the tardiness in releasing the full text on whether the ISPs must pay royalties and fees to the Rural Telecommunications Development Fund (RTDF).

Minister Gurung said that the Supreme Court is expected to release the full text within a week, but he ruled out adding additional upstream services from China, even if Indian vendors cut off services over the unpaid dues.

On May 2, Airtel, a leading telecom provider of India, cut off upstream services to Nepal after months of unresolved disputes between the government and ISPs over unpaid dues. The disruption started at around 5 pm and services were restored after around five hours. Airtel agreed to restore the service after the Nepal Telecommunications Authority, the regulator, promised to sort out the payment issue ‘responsibly.’

Later, some senior officials from Airtel, India also visited Kathmandu and discussed pending issues with senior government officials at different government entities and warned that they would be forced to shut down the internet service again if the government did not help the ISPs settle their dues including facilitating foreign currency exchange.

The ISPs have argued that a former parliamentary Public Accounts Committee had ordered a waiver on these fees, so they were not liable for paying royalties and RTDF fees.

However, on May 13, the Supreme Court scrapped a writ petition filed by Worldlink Communications and ordered the ISPs to pay the taxes they had collected from the public.

“With the agreement on Indian upstream services having already expired and payments still pending, they can cut off the service at any time,” said Sudhir Parajuli, president of the Internet Service Providers’ Association of Nepal. He added that since May, the Indian upstream service providers have not given any verbal or written warnings about cutting off the internet service again over the unpaid dues.

A former parliamentary Public Accounts Committee had a few years ago ordered the government to exempt ISPs from paying taxes on non-telecom components like web service, co-location, hosted service, disaster recovery, managed service, data centre, and cloud services.

The committee had said that ISPs would not be required to pay royalties and RTDF charges for three fiscal years—2017-18, 2018-19 and 2019-20.

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

The current parliament’s Public Accounts Committee has ordered the Ministry of Communications and Information Technology to recover the dues from the ISPs.

The ministry has been saying that it will recommend Nepal Rastra Bank to provide foreign exchange services to facilitate the payment to Indian upstream service providers.

“As the previous committee had exempted us from paying royalties and RTDF charges, we did not include such charges in customer bills at that time. But if the court orders us to pay, the additional cost will be passed on to customers,” said Parajuli.

According to the association, Nepali ISPs owe outstanding dues of NRs6 billion to Indian upstream service providers. According to the available data, Nepali ISPs need to pay NRs2.68 billion to Tata Communication and NRs 4.29 billion to Airtel, India. Almost all major ISPs in Nepal are responsible for paying these amounts.

The two Indian vendors provide 90 percent of Nepal’s internet service, with Airtel’s bandwidth accounting for almost 70 percent and Tata covering the remaining 20 percent.

Santosh Paudel, spokesperson of Nepal Telecommunications Authority (NTA), said that the court has determined that ISPs must pay the taxes. However, as the full text of the ruling is yet to be received, it is unknown how much the ISPs will need to pay.

“Unless we get the full text from the Supreme Court, we cannot direct ISPs to clear the tax amounts,” said Paudel. If the ISPs had taken the initiative to pay the outstanding taxes on their own, the NTA would have recommended foreign exchange services for payments to Indian upstream service providers, he said.

Around 10.6 million people use the internet in Nepal through 20 ISPs, including the state-owned Nepal Telecom.

The ISPs’ annual transactions amount to Rs27 billion, with the government earning more than Rs9 billion in revenue under eight headers.

During the term of the outgoing Minister for Information and Communication Technology Rekha Sharma, a letter was sent to Nepal Rastra Bank requesting not to provide foreign currency services until the ISPs paid the due royalty and RTDF charges.

On the other hand, Airtel and Tata also sent several letters in the past. If the vendors face risks due to delays in payments, from next time, there is a possibility that additional charges could be imposed, another ISPs owner said. He questioned the rationale behind stopping the ISPs from using foreign currency exchange services.

Minister Gurung accused the ISPs for the delay. “They came to us, but never asked and discussed foreign exchange as they are waiting for the full text to be released. Other sectors are also reluctant to pay the a la carte pricing,” said Gurung.

On Friday, the Ministry of Information and Communication approved foreign currency exchange for Nepali cable TV operators that broadcast foreign channels, allowing them to settle overdue royalty payments to Indian broadcasters under the a la carte system introduced about a year ago.

“For now, we are reliant on Indian vendors, so we are not thinking about alternatives,” said Minister Gurung.

Some officials said that Nepal could turn to China if Indian vendors cut off their services.

But that would not be easy as Nepal has already built infrastructure on the Indian side as well and is doing business with them, two officials at two different government entities said. “Setting up similar infrastructure with China would take years,” one of them said.

“As soon as we get the full text, we will determine the dues that our ISPs owe in royalties and RTDF charges,” said Minister Gurung. “And, simultaneously, we will also provide them foreign exchange to settle their outstanding dues.”