Nepal Government has removed 13% VAT on digital payments. Fonepay and Connect IPS users save, but not all wallets have complied. Here’s what you should know.

In the latest  Budget 2082/83, the government finally removed this 13% VAT on digital transaction fees.

If you’ve ever used mobile banking, Fonepay, or connectIPS to send money, you were paying that extra tax; quietly, every single time. Now? It’s gone.

Sounds like a win, right?

Sure. But here’s the real question:
If the tax was such a bad idea that it had to be removed within a year, why was it introduced in the first place?

What was it even supposed to fix?
Did it help raise more revenue?
Did it improve digital habits?
Or was it just another half-baked policy that quietly slipped through?

Everyone’s celebrating that it’s gone. But maybe we should be asking why it was ever there at all.

Oh, and one more thing; while Fonepay and connectIPS stopped charging the VAT right after the announcement, some wallets like eSewa and Khalti are reportedly still adding it.

Users are calling support and being told things like, “That rule doesn’t apply to us.”

Wait, what?

Anyway, we’ll come back to that.
But first, let’s rewind and look at what was really happening every time you sent Rs. 100 from your phone.

Because that’s where the story of this Rs. 11.3 tax really begins.

Where Your Rs. 11.3 Actually Went

Let’s talk about something that has annoyed almost every Nepali who’s ever transferred money online: the mysterious Rs. 11.3 you pay for a simple bank transfer.

You send Rs. 100 to your friend via mobile banking, and suddenly your account gets debited Rs. 111.3. What’s going on?

Here’s the breakdown:

Rs. 10: Straight to the Payment Gateway

• Most banks in Nepal route their digital transactions through Fonepay, which charges a flat Rs. 10 per transaction.
• Some use connectIPS, which has lower and tiered fees (ranging from Rs. 0 to Rs. 8, depending on the amount).

So the first Rs. 10 you lose? That’s just the system fee for processing your transaction.

Rs. 1.3: Straight to the Government

• The government slapped a 13% VAT on that Rs. 10 system fee.
• So, you paid an extra Rs. 1.3, not for what you transferred, but just for using the digital channel.
• But now that the government has scrapped this cost, you will only end up paying Rs. 10 on each mobile banking transaction.

Total: Rs. 11.3 for sending Rs. 100

Now, if you make one transaction a day, maybe it feels negligible.

But if you’re running a business, paying staff, settling bills, or just splitting lunch with friends, chances are you’re doing multiple digital transactions a day.

That’s dozens or even hundreds of rupees lost every week, just for using the very system everyone keeps telling you to adopt.

Imagine being pushed toward a "Digital Nepal", and then being penalized for participating in it.

Which brings us to the big question:

Did this policy change anything?

Let’s look at the actual data; not assumptions, not intentions, and see what happened to Nepal’s digital transactions during the time this 13% VAT was in effect.

Did This Policy Work? What the Data Says

The 13% VAT on digital transaction charges came into effect in Jestha 2081.

Now, usually, when the cost of using something goes up even slightly, people tend to pull back. That’s just basic economics.

So, did this extra Rs. 1.3 per transaction slow down the use of digital payments?

Luckily, No. It Didn’t.

In fact, digital transactions continued to grow, both in number and value, despite the additional cost.

Let’s look at the data from Nepal Rastra Bank:

Mobile Banking Transactions

• Baisakh 2081: 42.4 million transactions worth Rs. 336 billion
• Jestha 2081 (VAT starts): 44.3 million | Rs. 351 billion
• Asar 2081: 45.6 million | Rs. 374 billion
• Shrawan 2081: 47.5 million | Rs. 377 billion

Steady growth. No sign of slowdown.

Wallet Payments (eSewa, Khalti, etc.)

• Baisakh 2081: 27.8 million transactions
• Jestha 2081: 32.5 million
• Asar 2081: 32.1 million
• Shrawan 2081: 30.8 million

Slight dip in Saun, but still much higher than before the VAT was introduced.

QR Code Payments

• Baisakh 2081: 17.6 million
• Jestha 2081: 19.8 million
• Asar 2081: 20.8 million
• Shrawan 2081: 22.9 million

Consistent rise, month after month.

So What Did This Policy Actually Do?

That’s the thing; not much.

People didn’t stop using digital payments.
In fact, usage continued to climb, even with the added Rs. 1.3.

And on the flip side, the government didn’t earn much either.
When the extra tax is just Rs. 1.3 per transaction, even millions of transactions won’t move the needle in national revenue.

So we ended up with a policy that didn’t change behavior, barely raised money, and just made digital users quietly pay more, for no good reason.

Solution? The Restaurant Refund Scheme

Just when we were trying to figure out why we were paying Rs. 11.3 to send Rs. 100 online, the government came up with a “relief”:

“Pay digitally at restaurants and get 10% VAT refund.”

Sounds generous, until you do the math.

If you make 5 digital payments a day, you’re paying about Rs. 6.5 in VAT.
To get that back through this cashback scheme?
You’d have to spend Rs. 500+ at a restaurant. Seriously.

People were quick to ask:
“Are we being taxed just so we’ll eat out more? Is this policy or a promo campaign?”

But here’s the counterpoint, and maybe the real reason behind it:

Maybe this wasn’t about us at all.
Maybe the idea was to get restaurants to issue proper VAT bills.

Because when you pay by card or mobile, the transaction gets recorded, and restaurants can’t hide their sales.
In that sense, the 10% refund is less about rewarding you, and more about nudging businesses toward tax compliance.

Clever? Maybe.
But without a clear message, the whole thing felt like this:

“We’ll tax you for going digital. And if you spend even more, we might give you a little back.”

Good intentions. Bad optics. Confused citizens.

And that’s how even a smart-ish policy ended up sounding like a meme.

What This Really Says About Our Tax Policies

When you step back and look at the whole Rs. 11.3 drama; the 13% VAT on digital fees, the restaurant cashback scheme, the quiet rollback a year later, you start to see a bigger pattern.

And it’s not a great one.

This wasn’t just a random misstep. It was yet another example of how tax policies in Nepal often feel like they’re made on a whim; short-sighted, reactionary, and confusing.

Here’s the contradiction:

On one hand, the government is out there chanting "Digital Nepal!"
Telling us to go cashless, use Fonepay, use connectIPS, ditch the lines, and embrace the app life.

But on the other hand?

They’re quietly taxing us for using those very digital platforms.

It’s not just confusing. It’s exhausting.

And what’s worse? This wasn’t even targeting the right people.

If the real problem is VAT evasion by restaurants, or under-the-table cash payments, 

then build policies to fix that.

Explain them clearly.
Make them easy to follow.
Go after non-compliance, not the people who are already doing the right thing.

But instead, we got:

• A tiny tax that didn’t bring in real money,
• A refund scheme that nobody fully understood,
• And a year of frustration for digital users who were just… trying to pay their electricity bill or split dinner with a friend.

In the end, it wasn’t about Rs. 1.3.
It was about mixed signals, poor planning, and asking the wrong people to pay the price.

This is exactly why people get skeptical when the government says it's going “digital.”
Because if this is how it treats digital adoption, we can only imagine what happens when crypto or neo banks enter the chat.

Wait, Why Are We Still Paying 13% VAT on eSewa?

Here’s where things get even more confusing.

The government officially removed the 13% VAT on digital transaction fees in Budget 2082/83. Platforms like Fonepay and connectIPS have already implemented this, users can see the difference in their bank apps.

But try using some popular digital wallets like eSewa or Khalti, and you might still see that 13% VAT quietly being charged.

Yes, even now.

And when confused users call their customer support asking, “Why hasn’t the VAT been removed?”, they’ve reportedly been told:

“That rule doesn’t apply to us.”

Seriously?

This isn't just a technical delay, it reveals how poorly tax policy changes are communicated, understood, and implemented.

For everyday users, the signal is frustratingly mixed

For ‘Digital Nepal’ to work, the most basic requirement is that the government and payment platforms must speak the same language. And right now, even that isn’t happening.

What Should Have Been Done Instead

Let’s give credit where it’s due. The government did finally remove the 13% VAT on digital transaction charges in the 2082/83 budget. That was the right move.

But here’s the thing: it didn’t have to go this way at all.

There were better ways to handle this from the start. Ways that could’ve actually promoted digital payments, boosted tax compliance, and earned public trust, all at the same time.

1. Make Digital Payments Easier, Not More Expensive

If you want people to use mobile banking, Fonepay, connectIPS, QR codes, whatever the platform, the last thing you should do is make it cost more than paying with cash.

Instead of taxing small digital fees, the focus could’ve been on reducing or removing them. For example, making smaller transactions completely free or subsidizing fees for a while, just to give people that extra push.

Because let’s face it, we’re still building habits. And if users feel like they’re being punished for doing the right thing, they’re less likely to keep doing it. Nobody wants to feel like a quick way to settle transactions is secretly costing them more.

2. Reward Transparency Where It Matters

If the goal was to make restaurants issue VAT bills, then why not go after that directly?

Instead of this roundabout restaurant refund trick, the government could’ve made it compulsory for restaurants to issue VAT bills when paid digitally, and actually enforced it. Maybe make it easy for customers to report non-compliance, or verify their bill through a simple SMS or app.

And for businesses that are doing things right? Celebrate them. Highlight them. Make it a badge of honor to be fully tax-compliant.

That would send a clearer message: transparency matters, and we support those who play by the rules.

3. Fix the Bigger Revenue Leaks

Lets be real here. Rs. 1.3 per transaction was never going to fix Nepal’s revenue problem.

If we’re serious about boosting government income, the focus should be on the big leaks: under-the-table real estate deals, custom undervaluation, undisclosed business income, and large-scale VAT evasion, the kind that actually drains the system.

A small VAT on digital service fees was never going to move the needle. All it did was irritate users and complicate an otherwise simple system.

At the end of the day, if we’re aiming for a “Digital Nepal”, the path forward has to be clear, coordinated, and thoughtful.

That means better infrastructure, smarter incentives, and most importantly, no more mixed signals.

And now that the 13% VAT is gone, maybe it’s time to rethink how we build digital systems that actually feel rewarding, not punishing for the people using them.

 Final Thoughts

The removal of the 13% VAT on digital transaction charges in the 2082/83 budget was the right call. But let’s not celebrate it like it was some grand reform.

This wasn’t a win. It was a correction. A quiet admission that the policy never made sense to begin with.

Because it was never really about the Rs. 1.3.
It was about how disconnected policies can be from real-life behavior.

It was about telling people to embrace digital payments; Fonepay, connectIPS, mobile banking, QR codes, and then penalizing them for doing exactly that.

It was about trying to fix VAT compliance in restaurants by confusing everyday users with half-baked cashback schemes.

It was about sending mixed signals, taxing the wrong people, and making it harder, not easier, for the average Nepali to go digital.

Nepal doesn’t need patchwork policies.
It needs clarity, consistency, and a genuine commitment to smarter systems, not shortcuts.

So the next time someone says, “Digital Nepal is the future,”
Just ask them this:

“Are we making it easier to go digital, or just more expensive?”

Because if the goal is progress, the journey shouldn’t feel like a penalty.

 Additional Resources:

• Nepal Rastra Bank, Credit Cards & the Neo Bank Illusion
• New Tax Rate in Nepal 2082/83: Budget Changes for Business
• Digital Nepal Budget 2082: 5% Tax Rate on IT Exports Explained