Chinese Airlines Dispute Nepal’s VAT, Accruing Debt
Chinese carriers are reportedly refusing to pay Nepal’s value-added tax (VAT) on international air services, resulting in a combined debt of NPR 4 billion (USD 29.5 million). According to Kathmandu-based magazine Epardafas, the Chinese Embassy in Nepal is lobbying the Nepalese government to waive the tax, arguing that the imposition of VAT on foreign carriers violates international norms.
Nepal began levying VAT on international air services after changing its Finance Act in the second quarter of 2023. While most foreign airlines operating in Nepal have complied with the new tax laws, four Chinese carriers—Air China, China Eastern Airlines, China Southern Airlines, and Sichuan Airlines—have refused to pay.
A finance ministry official stated that all foreign airlines operating in Nepal are required to follow the country’s tax laws, just as Nepalese companies adhere to local tax regulations when operating abroad. The official emphasized that Nepal expects reciprocity in tax matters, reinforcing that the VAT law applies equally to all foreign carriers. Despite this, the four Chinese airlines are said to be pressuring the Nepalese government to reverse the VAT decision through diplomatic channels.
“Special facilities cannot be provided to Chinese airlines alone,” a spokesperson for the Nepalese government said. “Nepal’s tax system applies to everyone equally.”
According to ch-aviation schedules data, Air China and Sichuan Airlines operate daily flights between Kathmandu and Chengdu Tianfu, China; China Eastern Airlines runs three weekly flights between Kathmandu and Kunming Changshui; China Southern Airlines flies daily on the Kathmandu-Guangzhou route; and Air Sichuan also operates four weekly flights between Kathmandu and Chengdu Shuangliu.
The Chinese Embassy has warned of potential negative impacts on bilateral relations and inbound traffic flows if the VAT debt is not waived. The embassy claims that taxing international air tickets goes against international aviation principles and laws. The Nepalese government, however, maintains that VAT is levied on all air ticket purchases made within the country, including for international flights.
This ongoing dispute between Chinese carriers and Nepal has raised concerns over the potential impact on tourism and air traffic between China and Nepal, as well as broader diplomatic relations. The Nepalese government has made it clear that it expects all airlines operating within its borders to comply with local tax regulations, regardless of their country of origin.
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Sources: AirGuide Business airguide.info, bing.com, ch-aviation.com