Chapter 27- Income of Nonresident Air & Water Transport Operator and Telecommunication

Operator

Question 1- Page 198

As per Sec. 70 (1), the income of a nonresident (a resident entity, the head office of which is outside
Nepal) operating air, water transportation or chartered service shall include the following, except as a
result of transshipment:

a. Transportation of passengers who disembark from Nepal, and

b. Transportation of goods, mail or livestock who disembark from Nepal

Similarly, as per Sec. 70 (2), the income of a nonresident (a resident entity, the head office of which is
outside Nepal) operating telecommunication service includes any amount received by the person in
respect of the transmission of messages by apparatus established in Nepal; whether or not such
message originate in Nepal.

Based on the above facts:

a. Sec. 70 is applicable on the payment of air-ticket for departure from Nepal, as it is related to
Transportation of passengers who disembark from Nepal and not as result of transshipment.
b. Sec. 70 is not applicable as it is not for Transportation of passengers who disembark from Nepal, and
Transportation of goods, mail or livestock who disembark from Nepal.
However, restrictive clause of Sec. 2 (7) of Schedule 1 is applicable which requires payment of 2%
ticket money as corporate tax when tickets are purchased/ sold in Nepal.
c. As it is result of transshipment, Sec. 70 is not applicable.
d. Same as (c), since it is as a result of transshipment, Sec. 70 is not applicable.

Question 2- Page 198

Since, Nepal Airlines has head office in Nepal; the income of Nepal Airlines is subject to tax as per
normal other provisions of the Act and not u/s 70.

As per Sec. 70 (1), the income of a nonresident (a resident entity, the head office of which is outside
Nepal) operating air, water transportation or chartered service shall include the following, except as a
result of transshipment:

a. Transportation of passengers who disembark from Nepal, and

b. Transportation of goods, mail or livestock who disembark from Nepal

Since, the foreign Airline does not operate any flights from Kathmandu, Sec. 70 is not applicable.

However, as per restrictive clause of Sec. 2 (7) of Schedule 1 of the Act; in case when the
disembarkment is not from Nepal and from any country outside Nepal but the airlines sells ticket in Nepal,
2% tax is applicable. As such, 2% of 800,000 (from Delhi to other locations) shall be the corporate tax
liability.

Question 3- Page 198

As per Sec. 70 (1), the income of a nonresident (a resident entity, the head office of which is outside
Nepal) operating air, water transportation or chartered service shall include the following, except as a
result of transshipment:

a. Transportation of passengers who disembark from Nepal, and

b. Transportation of goods, mail or livestock who disembark from Nepal
 Chapter 27- Income of Nonresident Air & Water Transport Operator and Telecommunication
Operator

Since Den Airlines sold air tickets from the passengers departing from Nepal of Rs. 500 Million, as per
Sec. 70 (1) (a) explained above, the amount is taxable. The tax rate is 5%. No expenses related to any
flight are deductible.

As the collection of Rs. 100 Million is for the passengers departing from other countries; Sec. 70 is not
applicable. However, as per restrictive clause of Sec. 2 (7) of Schedule 1 of the Act; in case when the
disembarkment is not from Nepal and from any country outside Nepal but the airlines sells ticket in Nepal,
2% tax is applicable.

Question 4- Page 198

As per Sec. 70 (2), the income of a nonresident (a resident entity, the head office of which is outside
Nepal) operating telecommunication service includes any amount received by the person in respect of the
transmission of messages by apparatus established in Nepal; whether or not such message originate in
Nepal.

As Singtel Ltd. has a communication hub in Nepal, the information is transmitted through apparatus
established in Nepal. Any amount received in that respect is taxable in Nepal. As such, USD 1 Million is
taxable in Nepal.

Question 5- Page 198

Calculation of Tax Liability as per Sec. 70 of the Act:

Particulars Refer Amount

W. N.
Amount received from Sale of air tickets to passengers disembarking from 1.1 10,000,000
Nepal
Amount received for goods to be transported from Nepal, Kathmandu being 1.1 5,000,000
first point of sending goods
Amount received from passengers from Bhutan & Lhasa, Kathmandu being 2 -
transit
Amount received for goods sent from Bhutan & Lhasa 2
Taxable Amount (u/s 70) 15,000,000
Tax Liability @ 5% 750,000
Working Notes:

1. Section 70 is applicable on the following:

• As per Sec. 70 (1), the income of a nonresident (a resident entity, the head office of which is
outside Nepal) operating air, water transportation or chartered service shall include the following,
except as a result of transshipment:
a. Transportation of passengers who disembark from Nepal, and
b. Transportation of goods, mail or livestock who disembark from Nepal
• Similarly, as per Sec. 70 (2), the income of a nonresident (a resident entity, the head office of
which is outside Nepal) operating telecommunication service includes any amount received by
the person in respect of the transmission of messages by apparatus established in Nepal;
whether or not such message originate in Nepal.

As such, amounts received from operation of restaurant and ground handling service is not
chargeable to tax as per Sec. 70, but is chargeable to tax as per other provisions of the Act, i.e. as
applicable to normal entity.
 Chapter 27- Income of Nonresident Air & Water Transport Operator and Telecommunication
Operator

1.1. Since it is for the disembarkment of passengers from Nepal, the amount is taxable.
1.2. Since it is for the disembarkment of goods from Nepal, the amount is taxable.
2. As explained in Working Note (1) above, in case of disembarkment from Nepal as a result of
transshipment of goods or services, Sec. 70 is not applicable. In such cases, the amount is not
taxable in Nepal.
3. As per Proviso to Sec. 70, any expense related to operation of air transport, water transport or
chartered services, or telecommunication services by a nonresident person is not deductible in Nepal.