Invoice Issuance and Platform Commission Taxation: Analysis and Recommendations
1. The IRD Public Notice on VAT for Ride Sharing Services, 2083
1.1 Legal Framework and Authority
The Inland Revenue Department (IRD), Ministry of Finance, Government of Nepal, issued the Public Notice on VAT for Ride Sharing Services, 2083 vide its decision dated 2083/03/31 (Ashadh 31, 2083 B.S.).
The notice derives its authority from the Finance Act 2083, which amended the VAT Act 2052 by inserting a new Sub-section (1Kha) to Section 7 of the Act. This creates a specific statutory regime for VAT in the ride sharing sector, distinct from the general VAT provisions applicable to other registered suppliers.
The stated objectives of the notice are to:
Simplify the procedural requirements for VAT collection in ride sharing transactions.
Provide clarity, transparency, and predictability in the tax obligations of ride sharing operators and riders.
Ensure broader tax compliance and participation in the ride sharing sector.
A critical feature of the new legislative framework is that it does not require individual riders to be VAT-registered. Instead, the VAT collection and remittance obligation is placed on the platform (the ride sharing operator), which is already required to be VAT-registered. Riders are only required to hold a Permanent Account Number (PAN). This approach acknowledges the gig economy nature of ride sharing and seeks to consolidate the compliance function at the organized, technology-capable platform level.
1.2 Summary of All Eight Provisions
The notice sets out eight specific obligations and provisions applicable to ride sharing operators and riders:
Point | Provision | Detail |
1 | VAT Registration of Operator | The ride sharing operator (platform) must be registered for VAT. |
2 | 5% VAT Collection on Ride Fare | The platform must collect VAT at 5% on the service charge paid to riders for transport and delivery services provided through the platform. |
3 | Invoice Issuance per Schedule Ka | A tax invoice must be issued on behalf of the rider per the Schedule Ka format for each ride or delivery transaction. The income from the invoice belongs to the rider, not the platform. |
4 | Consolidated Filing by Platform | The platform must file the collected tax and rider-wise details to the relevant tax office by the 25th of the following month. |
5 | No Input Tax Credit for Platform | The platform cannot claim Input Tax Credit (ITC) on the VAT collected and filed on behalf of riders. |
6 | Platform's Own VAT Compliance | For its own regular business transactions, the platform must comply with the VAT Act 2052 and VAT Rules 2053 in the normal course. |
7 | 13% VAT on Commission Income | The platform must collect 13% VAT on commission and other service fee income received from riders and other regular business, issuing invoices per Schedule Kha. |
8 | PAN Mandatory for Riders (VAT Registration Not Required) | All riders providing transport or delivery services through the platform must hold a PAN. However, VAT registration is not mandatory for riders. |
1.3 Prescribed Invoice Formats
The notice prescribes two distinct tax invoice formats as schedules. Each format applies to a different type of transaction and a different VAT rate:
Format | Applicable To | Issuing Party | VAT Rate |
Schedule Ka | Ride sharing and delivery transactions | Platform, on behalf of the rider (agency basis) | 5% |
Schedule Kha | Platform's own commission, technology, and regular business income | Platform, in its own capacity | 13% |
Schedule Ka: Tax Invoice for Ride and Delivery Transactions
Schedule Ka is the invoice format for transactions where a rider provides a transport or delivery service to a passenger or customer through the platform. A defining feature of this format is that it shows both the platform's identity and the rider's identity on the same document. The platform appears as the issuing agent (with its PAN), and the rider appears as the actual service provider (with the rider's PAN). This structure is consistent with an agency invoicing arrangement, where the platform generates the document on behalf of the rider but the income belongs to the rider.
Prescribed Format: Schedule Ka (Rider-Level VAT Invoice)
(Issued by the Platform on Behalf of the Rider for Ride/Delivery Transactions)
Platform Name: | Transaction Date: | ||
PAN No. (Platform): | Invoice No.: | ||
Customer Name: | Trip / Delivery Details: | ||
Rider Name: | Rider's PAN No.: |
S.No. | Service Description | Qty / Trip | Rate (Rs.) | Total (Rs.) |
1. | Ride Sharing Service / Delivery Service | |||
2. | ||||
Total Taxable Amount (Rs.): | ||||
5% VAT (Rs.): | ||||
Grand Total (Rs.): | ||||
Amount in Words: | ||||
Schedule Kha: Tax Invoice for Platform's Regular Business
Schedule Kha is the invoice format for the platform's own business income, including commission earned from riders, technology and platform access fees, and any other regular business. Unlike Schedule Ka, this invoice is issued by the platform in its own capacity, not on behalf of any rider. The applicable VAT rate is 13%, which is the standard rate under the VAT Act 2052.
Prescribed Format: Schedule Kha (Platform's Own Business VAT Invoice)
(Issued by the Platform for Its Own Commission and Regular Business Income)
Platform Name: | Transaction Date: | ||
PAN No. (Platform): | Invoice No.: | ||
Customer Name: | Customer PAN No.: | ||
S.No. | Service Description | Qty / Trip | Rate (Rs.) | Total (Rs.) |
1. | ||||
2. | ||||
Total Taxable Amount (Rs.): | ||||
13% VAT (Rs.): | ||||
Grand Total (Rs.): | ||||
Amount in Words: | ||||
1.4 Key Observations from the Notice
Before proceeding to the detailed analysis, the following structural observations from the notice are material:
The notice places the VAT collection and filing obligation squarely on the organized platform entity, not on individual riders. This is a sensible design that acknowledges gig economy realities.
The Schedule Ka format itself is an agency invoice: the platform's PAN and name appear as the issuing entity, while the rider's name and PAN appear as the service provider. The notice explicitly states that the income from Schedule Ka invoices is the rider's, not the platform's. This design already incorporates the core principle of agency invoicing.
Riders are exempted from mandatory VAT registration. Only PAN is required. This is a progressive provision that reduces the compliance burden on informal sector gig workers.
However, two provisions relating to the implementation of Schedule Ka and the treatment of 13% VAT on commission income raise important practical and structural concerns that are examined in detail in the following sections.
2. Schedule Ka Implementation and the Invoice Issuance Challenge
2.1 The Invoice Issuance Requirement
The notice mandates that a tax invoice conforming to the Schedule Ka format be produced for each completed ride or delivery, on behalf of the rider. The income recognised in that invoice is explicitly attributed to the rider, not to the platform. The platform bears the dual responsibility of generating the invoice and remitting the collected 5% VAT, along with a consolidated rider-wise statement, to the relevant IRD office within 25 days of the close of each month.
Looked at closely, Schedule Ka does not depart from agency invoicing. It embodies it. The format places the platform's name and PAN in the issuing entity position, while the rider's name and PAN appear as the service provider. The document is therefore simultaneously the platform's agent act and the rider's tax record. Riders are not expected to produce, store, or submit invoices independently. The entire documentation and filing function sits with the platform.
This design is administratively sound and commercially rational. The difficulty does not lie in the architecture of the requirement. It lies in the operational gap between what the framework envisions and what current platform infrastructure can deliver at scale. The following sub-sections examine that gap in detail.
2.2 Practical Implementation Challenges
Full Schedule Ka compliance requires navigating a set of interrelated operational, technological, and regulatory challenges. Six issues are identified below, several of which are unique to the gig economy model and not addressed in the existing VAT framework:
Technology and System Requirements: The notice mandates a specific invoice format but provides no guidance on acceptable digital/electronic invoice systems, API integrations with IRD, or offline backup requirements.
System updates for compliance: Global tech platforms need time to modify billing and invoicing systems to meet IRD's specific invoice requirements.
PAN requirement for riders: PAN requirement applies to the entire existing rider base, not just new riders, making verification and follow-up a months-long effort.
Sub-minute transaction closure: Trips settle within minutes, requiring real-time, event-driven invoice generation with fail-safes for network, payment, and app delays.
Dynamic fare composition: Fares are algorithmically assembled from multiple variable components, making consistent VAT base calculation complex.
Invoice correction and credit notes: No defined mechanism exists for cancelling, amending, or offsetting invoices for disputed or adjusted trips.
2.3 The Agency Invoicing Model: Already Embedded in Schedule Ka
One feature of the notice that gets overlooked is that its own prescribed format already incorporates the agency invoicing principle. Schedule Ka is more than a template. It states how the invoicing relationship in ride sharing operates. Three elements confirm this:
The platform's name and PAN occupy the issuing entity fields, making the platform the nominal producer of the document.
The rider's name and PAN occupy the service provider fields, making the rider the party whose income the document records.
The notice explicitly states that the income reflected in a Schedule Ka invoice is the rider's income, not the platform's. The platform is categorically excluded from claiming that income as its own.
Taken together, these three features constitute an agency arrangement: the platform acts on behalf of the rider to produce a document that records the rider's supply. The rider is the principal, the platform is the agent, and the legal ownership of the invoice income sits unambiguously with the rider. This structure is entirely consistent with the agency provisions of Nepal's Muluki Dewani Sanhita (Civil Code), which permits commercial acts to be performed by one party on behalf of another.
Importantly, this means the fundamental compliance design question has already been resolved by IRD. The framework does not require individual riders to issue their own invoices, does not require riders to be VAT registered, and does not require riders to interface directly with IRD for ride transaction filing. These are platform responsibilities. What remains is the implementation question: how platforms operationalise this model at scale and within what timeline.
The following table sets out the key legal and operational attributes of the embedded agency invoicing model:
Attribute | Position under Schedule Ka |
Invoice Issuer | Platform (using platform's PAN as the issuing entity) |
Service Provider | Rider (rider's name and PAN shown on the invoice) |
Income Attribution | Rider (the notice explicitly states the income from the invoice is not the platform's) |
VAT Rate | 5% on the full ride/delivery fare |
VAT Collector | Platform (collects from the passenger and remits to IRD) |
Filing Responsibility | Platform (files consolidated rider-wise details by 25th of following month) |
Rider's VAT Registration | Not required (only PAN is mandatory) |
2.4 International Reference: India's GST Framework (Section 9(5) of CGST Act 2017)
India has specifically addressed the GST liability of ride-sharing platforms through Section 9(5) of the Central Goods and Services Tax Act, 2017, read with Notification No. 17/2017-Central Tax (Rate), as subsequently amended.
Under this framework, where passenger transportation services are supplied through an electronic commerce operator, the GST liability is shifted to the electronic commerce operator. The operator is required to discharge GST on such supplies as if it were the supplier of the service.
Parameter | India’s GST Framework |
Person liable for GST | The electronic commerce operator, such as Uber, Ola or Rapido, is liable to pay GST on passenger transportation services covered by Section 9(5), as if the operator were the supplier. |
GST Rate | Passenger transportation by motor vehicle generally attracts GST at 5%, subject to the prescribed input tax credit restrictions. |
Basis of GST | GST is generally applied to the full consideration charged for the passenger transportation service, rather than merely to the platform commission. |
Passenger Invoice / Receipt | For rides falling under Section 9(5), the electronic commerce operator assumes the GST compliance responsibility for the transaction. Accordingly, the platform can issue the passenger-facing tax invoice/receipt for the ride instead of requiring each individual driver to separately manage GST invoicing for the platform-mediated transaction. |
Driver GST Registration | The fact that the ride is supplied through an electronic commerce operator does not, by itself, require the individual driver to register solely because of Section 9(5). The normal GST registration provisions must nevertheless be considered depending on the driver’s other taxable supplies and circumstances. |
Driver Income Traceability | Separately from GST, Section 194-O of the Income-tax Act requires an e-commerce operator to deduct TDS on payments/credits relating to sales or services facilitated through its platform. The applicable rate is currently 0.1% of the gross amount, subject to the statutory exemptions and threshold |
Alignment with Nepal's Schedule Ka | Very high. Nepal's Schedule Ka already incorporates the same agency principle, with the platform issuing on behalf of the rider and income attributed to the rider. |
2.5 Recommendations on Invoice Issuance
Since the structural design of Schedule Ka already correctly embeds the agency invoicing principle, the following recommendations address the implementation pathway, the transition mechanism, and the regulatory gaps that remain unresolved by the current notice:
Recommendation | Detail |
Interim Compliance Bridge via Digital Receipts | IRD should issue a specific administrative circular confirming that platform-generated digital trip receipts (delivered via application and email), which already capture fare, 5% VAT, rider identity, and trip reference, constitute compliant Schedule Ka documents for the interim period. This removes the legal ambiguity over existing documentation without requiring platforms to rebuild their systems immediately. |
Formal Transition Timeline | A structured transition window of 3 to 6 months should be formally notified to platforms, with milestone checkpoints (PAN collection target, billing system integration, test invoice submission to IRD) to ensure progress is measurable and accountable. |
Legal Notification on Electronic Invoice Validity | IRD should notify, under the VAT Rules 2053, that Schedule Ka invoices delivered digitally in PDF or in-application format constitute valid tax invoices, with the same legal standing as paper documents. This recognises the cashless, app-native nature of ride sharing transactions. |
Credit Note and Cancellation Protocol | IRD should issue guidance on the treatment of cancelled, disputed, or fare-adjusted trips, including the mechanism for generating credit notes against previously filed Schedule Ka invoices, and how such corrections are to be reflected in monthly consolidated filings. |
3. 13% VAT on Platform Commission and the Double Taxation Concern
3.1 The Commission Taxation Requirement
In addition to its role as the VAT collection and filing agent for rider-level transactions, the platform is itself a VAT-registered supplier of intermediation services. The notice requires that the platform collect 13% VAT on commission income and all other service fee revenue derived from its regular business, issuing a Schedule Kha invoice for each such supply. This is the standard VAT treatment applicable to technology and services companies under the VAT Act 2052.
Taken individually, each obligation is legally coherent. The 5% VAT applies to the rider's transport supply; the 13% VAT applies to the platform's intermediation supply. The structural difficulty arises from the economic inseparability of these two supplies within a single ride sharing transaction. The platform's commission is not a separate commercial event; it is extracted directly from the ride fare as a deduction before the rider receives the balance. The consequence is that the commission component of the fare is caught by two VAT charges simultaneously, producing a cascading tax effect on a single underlying value.
The two concurrent VAT charges that arise from every ride transaction are:
5% VAT levied on the full ride fare, including the portion that represents the platform's commission.
13% VAT levied on the platform's commission income, which is the same amount on which 5% VAT has already been charged as part of the full fare.
3.2 Illustration of the Cascading Tax Effect
The following worked example isolates the tax treatment of the commission component within a single ride transaction, demonstrating how the same economic value attracts VAT at two different rates simultaneously:
Assumptions | Amount |
Total Ride Fare (paid by passenger) | NPR 200 |
Platform Commission (assumed at 20% of fare) | NPR 40 |
Rider's Net Receipt (after commission deduction) | NPR 160 |
Tax Event | Taxable Base | Rate | Tax Amount (NPR) |
5% VAT on full ride fare (passenger pays) | NPR 200 | 5% | NPR 10 |
VAT on commission embedded in ride fare (sub-component of above) | NPR 40 | 5% | NPR 2 |
13% VAT on commission (rider pays to platform per Schedule Kha) | NPR 40 | 13% | NPR 5.20 |
Total effective VAT on commission component (double-taxed value) | NPR 40 | 18% * | NPR 7.20 |
* The aggregate VAT burden on the commission component reaches 18% (5% embedded in the ride fare VAT, plus 13% charged separately as commission VAT), compared to the standard 13% that applies uniformly to all other service categories. No other service type in Nepal's VAT framework is subject to this compounded rate structure. The additional 5 percentage points represent a structural anomaly, not a deliberate policy choice. Its correction requires either a legislative amendment or an administrative directive clarifying the tax point for ride sharing transactions. |
3.3 Structural and Policy Conflicts
The dual VAT structure conflicts with several foundational principles of sound tax policy. Each conflict is substantive and independent; any one of them, standing alone, would be sufficient to warrant a policy review:
Principle | Nature of the Conflict |
Non-Cascading Taxation | VAT is a non-cascading tax by design. At each stage of a supply chain, the registered supplier collects VAT on its output and claims credit for VAT paid on its inputs, ensuring that tax is collected only on the value added at each stage. The current structure imposes VAT on the commission value at two stages simultaneously with no credit available for the prior-stage levy. This is a textbook example of the cascading effect that VAT was specifically designed to eliminate. |
Formalisation of the Digital Economy | Government policy explicitly supports the growth of Nepal's digital economy, cashless payments, and the formalisation of previously undocumented economic activity. A tax structure that makes formal digital platforms more expensive than informal cash-based alternatives directly conflicts with this policy objective, discouraging voluntary formalisation. |
VAT as a Consumer Tax | VAT is ultimately borne by the end consumer. The compounding effect on the commission component increases the fare payable by the passenger, transferring the structural inefficiency of the tax framework to the consumer without any corresponding policy benefit. Consumers who choose formal, documented transport are effectively penalised for that choice. |
Revenue Efficiency | A well-designed VAT maximises revenue collection with minimal distortion. The current dual-rate structure is unlikely to generate materially more revenue than a clean, single-rate mechanism, since the additional tax on commission either reduces rider take-home pay (reducing income tax base) or is absorbed in platform pricing (suppressing demand). A streamlined structure would collect equivalent or greater revenue with less friction and distortion. |
3.4 International Reference: India's GST Framework
India’s GST framework addresses the potential duplication of GST on platform-mediated passenger transport by placing the GST liability for the notified passenger transport service on the electronic commerce operator (ECO) under Section 9(5) of the CGST Act, 2017.
GST on the ride transaction: The ECO is responsible for paying GST on the notified passenger transportation service. In the conventional commission-based model, the GST liability is calculated with reference to the consideration for the passenger transport service, rather than merely on the driver's net amount after deduction of the platform's commission. Thus, the platform's deduction of its commission does not create a second GST charge on the same passenger transport transaction.
ITC and Section 9(5) liability: The ECO cannot use its input tax credit to discharge the GST liability arising under Section 9(5). CBIC Circular No. 240/34/2024-GST clarifies that the Section 9(5) liability must be paid through the electronic cash ledger. However, ITC relating to the ECO's own inputs and input services remains available for payment of GST on the ECO's own taxable supplies, such as its separately supplied platform or other services, subject to the normal ITC conditions.
Separate services of the platform: Where the platform independently supplies services to businesses or other customers such as advertising, technology, analytics or other platform-related services those supplies are legally separate from the passenger transport transaction and are subject to GST at the rate applicable to the particular service.
Compliance responsibility: The key feature of Section 9(5) is that the ECO assumes the GST payment responsibility for the notified passenger transport supply. The GST return system separately requires the ECO to report these supplies and discharge the corresponding tax liability. The underlying service provider does not separately pay GST on the same Section 9(5) supply.
Accordingly, India's framework provides a relatively clear compliance model for platform-mediated passenger transport: the GST obligation on the ride is consolidated at the platform level, while the platform's own independent supplies remain separately taxable. This reduces the risk of taxing the same underlying passenger transport transaction through multiple GST events.
3.5 Recommended Approaches
Two approaches are proposed, in order of preference:
Approach A (Preferred): Integrated 5% VAT on the Full Ride Fare at Platform Level |
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Approach B (Alternative): Differential VAT Credit Mechanism |
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3.6 Comparison of Approaches
Criterion | Approach A (Preferred) | Approach B (Alternative) |
Double Taxation | Fully eliminated | Partially mitigated through credit |
Complexity | Low: one VAT event per transaction | Moderate: dual VAT with credit adjustment |
IRD Compliance Burden | Lower: single filing per transaction | Higher: credit claims require documentation |
Alignment with India | Full alignment with Section 9(5) | Partial alignment |
Legislative Change Required | Yes: IRD directive or VAT Act amendment | Yes: credit mechanism needs formal basis |
Status | Preferred approach | Only if Approach A is not immediately feasible |
4. Conclusion
The VAT framework for ride sharing services, introduced through the Finance Act 2083 and operationalised through the IRD public notice, is a considered attempt to bring a fast-growing, largely undocumented sector into Nepal's tax net. The foundational design choices are sound: placing the collection and filing obligation on the organised platform rather than on individual gig workers, exempting riders from VAT registration while mandating PAN for traceability, and building an agency invoicing structure into Schedule Ka that is consistent with Nepal's Civil Code and with international best practice.
The Schedule Ka format holds up well as a piece of policy design. IRD did this by putting the platform's PAN on the invoice as issuer and the rider's PAN as service provider, and by stating plainly that the income belongs to the rider. The result lines up closely with the regime India has run under Section 9(5) of the CGST Act since 2017. The compliance architecture is correctly designed. What is needed now is a realistic, well-sequenced implementation plan and resolution of the structural tax overlap on commission income.
On Schedule Ka implementation, the six challenges identified include platform architecture constraints, legal recognition gaps, real-time invoice generation, and invoice correction mechanics. None is insurmountable. Taken together, they call for a 6 to 9 month structured transition period, combined with an IRD directive providing interim recognition of existing digital trip receipts as Schedule Ka compliant. This approach bridges the current implementation gap without diluting the compliance objective.
On commission VAT, the concurrent levy of 5% on the full ride fare and 13% on the embedded commission is an inadvertent consequence of applying standard VAT rules to a transaction where the commission is economically inseparable from the underlying fare. The resulting effective rate of 18% on the commission value contradicts the non-cascading principle of VAT, creates a competitive disadvantage against the informal transport sector, and transfers an unjustified cost to passengers. Approach A consolidates the tax point at the full fare level under a single 5% VAT, resolving the problem definitively. Approach B introduces a differential credit for the overlap and can be implemented without primary legislation.
A comprehensive IRD directive should cover interim Schedule Ka recognition, a phased implementation roadmap with defined milestones, a credit note and cancellation protocol, and the treatment of commission-level VAT. These measures are targeted, administratively feasible, and backed by a tested international reference. Together, they would give the 2083 public notice a workable operational foundation and move Nepal closer to a transparent, formally documented, and competitively neutral ride sharing sector.
Source:
IRD public notice (PDF)Disclaimer: This article presents an independent analytical perspective and is intended for informational purposes on matters of public tax policy. It does not constitute formal legal or tax advice. Readers are advised to consult qualified tax and legal professionals for specific compliance guidance.
