Taxing Creativity: The Rising Withholding Tax on Foreign Earnings for Nepalese Content Creators

And she went viral! 

Sami from Achham, who ran a Tiktok page named  “@gaukikanchi”, went viral after she uploaded a local recipe called Faado (a local dish made of a lentil flour) in Tiktok. A Tiktoker who barely used to get  5k views for her videos and barely used to  earn sufficient  money out of her creations, suddenly shined after a large mass of people loved and cherished her local recipe. She was not just getting responses from Nepal but from countries like India, Bangladesh and many other South Asian nations who related to this unique cuisine and who loved her unique way of presentation. Soon enough, people and businesses from foreign countries also started approaching her for creating videos for them, in order to bring their cuisine into similar limelight. 

Now, Sami, gau ki kanchi, was getting paid, that too in foreign currency for her videos that she created for people abroad. All happy and good so far right?

But here comes a concern! Is her income free from taxes? How will her foreign  income be treated? Sami, a self-employed person, who hardly had any income was getting paid in foreign currency worth lakhs. So, what kind of taxes will she be liable for?

Introduction of Withholding Tax  on Foreign Currency Earned 

In order to bring the revenue earned from social media and especially the revenue earned in foreign currency within the ambit of taxation, in the fiscal year 2079/80 government first proposed 1% withholding tax  collection by banks, financial institutions, and money transfer institutions on foreign currency earned by resident individuals (who are not involved in commercial operations ) for uploading audio-visual  content on social media. Amending section 95a subsection 6d in  the Income Tax Act, 2058, the government proposed this provision  through the Financial Bill, 2079.

As the government had noticed the hype of the content economy in Nepal, the government had pulled out the move to bring the earning within the ambit of tax.. It was a move especially intended to bring the foreign currency earned within the ambit of taxation. But let's not turn a blind eye to the fact that the provision  was also brought as  one of the  resorts for the time when the government was facing a major foreign currency crunch due to significantly less tourism revenue and declining remittance, as an aftermath of pandemic. 

Increment in the Withholding Tax  on Foreign Currency Earned for 

Taking a higher leap,  the government  for the upcoming F/Y 2080/81 has proposed to collect 5% of their foreign income as withholding tax  .Amending section 95a subsection 6d  in  the Income Tax Act, 2058, the government has proposed the following  through the Financial Bill, 2080:

“Banks, financial institutions, and money transfer institutions shall deduct 5% withholding tax  on the payment of foreign currency earned by resident individuals who are not involved in commercial operations for uploading audio-visual  content on social media.” 

Implication  of the Tax Arrangement 

For the upcoming fiscal year, the government has increased the withholding tax  on the foreign currency earned by resident individuals(who are not involved in commercial operations) for uploading audio-visual  content on social media by 4 times. This certainly  has a positive impact on the revenue collection of the government. In fact the government will be earning the revenue in foreign currency, which will compensate for the foreign currency crunch  to a certain extent. In the same manner, by establishing such tax arrangements on a sector considered  informal, the government has taken a  step to formalise it and bring it under the purview of regulation. 

However, this new provision can be discouraging for the content creators who have just reached the international market and are exploring the boundaries of creativity. Likewise, content creation in Nepal is a budding sector and the individuals involved in this platform should be encouraged and incentivized, but this kind of provision can be somewhat discouraging for them.. It is common knowledge that the artistic sector in Nepal is not very incentivizing. Content creation also falls in the same category. The proposed provision to deduct 5% of their already underpaid revenue can be a massive disappointment to struggling content creators in Nepal. 

Reason to Incentivize Content Economy 

Content creation, what emerged with social media platforms as a medium of engagement among users is now more than just a recreational medium.  These days content creation has become a primary tool of advertisement for business and service providers to create a wider reach of their services and products across the globe. As the internet has no territory, contents created and posted on social media can travel the globe and influence people of different backgorunds, ethnicity, economy etc . Apart from engaging in something that they love creatively, Content creators play an increasingly important role in advertising. Content creators can help brands reach a wider audience, build relationships with consumers, and drive sales. And this is one of the primary reasons to incentivise content  economy, especially at this point of time if we seek to be globally competitive in the sector of business and industrial development. 

Thus, the government should also be observant towards the positives of a content economy in the business sector of Nepal. And along with regularising the revenue generated from content creation, the government should also propose incentivizing and encouraging provisions for the budding content creators.