Think twice about bringing your mobile to Nepal

Nepalis have to wait months to get passports to go abroad for study or work, and when they return their mobile phones will likely not function. It seems the Nepal government is making it as difficult as possible for its citizens just to benefit some businesses.

From 1 January, the Nepal Telecommunications Authority was planning to implement its Mobile Device Management System (MDMS) that requires passengers landing in Nepal to register their phones, and pay taxes on their second mobiles.

The announcement was greeted by outrage on social media, with the state-run agency being accused of allowing mobile phone importers to make a larger profit. Reacting to public pressure, Prime Minister Pushpa Kamal Dahal instructed the NTA on Friday not to implement the MDMS just as yet.

The announcement is still there, officials at NTA said, but it has just been postponed at the prime minister's request. If the MDMS is implemented, any new mobile phone being brought into the country by Nepalis or foreigners will not work after 15 days unless the user goes through the tedious process of registering it at the airport.

The NTA said it decided on the measure to stop the smuggling and sale of devices and also for security reasons. It has partially implemented MDMS, and was planning to make it mandatory for all new imported phones from 1 January.

“We have waited 5-6 years to bring the MDMS into operation, and the sole purpose is to allow stolen and lost phones to be tracked, and to increase government tax revenue,” the NTA’s Santosh Poudel said. There is no indication when the rule will now be put into force.

But for now, Nepalis returning from abroad and foreigners will still be allowed to bring only one mobile phone, and are taxed for every extra one. If MDMS had been implemented on 1 January, they would have had to line up after arrival at the airport to register even their single phone.

For the second phone they will have to pay 5% excise duty and 13% VAT. If passengers are found to have more than two phones, the devices will be confiscated and auctioned, the NTA warned.

At a time when Nepal’s new government is under pressure to streamline the difficult and lengthy process to get passports, driving licenses and other permits, the announcement (below) about the MDMS angered many — especially in the diaspora.

‘The next thing you know they will start forcing us to fly only Nepal Airlines,’ wrote one angry Nepali migrant worker abroad. ‘There is no point going back to a country that gives us so much trouble.’

‘In the name of stopping smuggling, they are helping Nepal’s biggest smugglers,’ wrote another.

Past governments are accused of benefiting selected businesses and importers — just like this year’s budget revised tax laws for electric vehicles that were favourable only for one or two importers.

An earlier provision allowed mobile phone importers to be refunded up to 60% of the VAT they paid if they submitted proof that it had been sold within Nepal. This meant that more than half the tax did not go to the government treasury, but to the pockets of the phone businessmen.

For example, if a customer bought a mobile phone for Rs20,000, they would pay a VAT of Rs2,600. But of that, Rs1,530 would actually go to the importer and add to their margin.

Between 2002-2012, the government refunded Rs2.11 billion to businessmen for their phone sales. An investigation ten years ago found that some companies even claimed to be running at a loss to avoid paying taxes.

Customs Department records show that the importer of Samsung phones, Deepak Malhotra, benefited the most from the VAT refund scheme. His company actually re-exported nearly 75,000 phones worth Rs581 million to Dubai and Hong Kong, after collecting a VAT refund for them in Nepal.

But state patronage of big businesses continued despite several investigations, including an Auditor General’s report in 2012 recommending that VAT refund for mobile phones be scrapped. It was finally stopped by Finance Minister Yubaraj Khatiwada under Prime Minister K P Oli’s government in 2018.

Khatiwada told us in an interview at the time that he faced a lot of pressure from businesses to continue the refund provision. It was after mobile phone importers lost their VAT refund bonanza, they turned to the MDMS as a profiteering method.

Samsung importer Malhotra who is also the chair of the Mobile Importers’ Association actually admitted earlier this year: “We will celebrate the day that MDMS is implemented.” He had likely prepared to celebrate, but Prime Minister Dahal's decision on Friday to retract the MDMS for now will dampen his jubilation.

Those most affected by MDMS would have been the at least 3 million Nepalis who work or study abroad when they return to Nepal with their phones. Tourists and other foreign visitors would also have been inconvenienced since their SIM cards would stop working after 15 days.

Besides their personal phones, many Nepalis have been bringing back mobiles as gifts for relatives and friends. The MDMS provision would have put a stop to this practice.

The MDMS may reduce smuggling of phones, but would have added to the many inconveniences faced by Nepalis going or returning from abroad, and will directly benefit mobile importers.

A similar ban on passengers not allowed to bring in more than one bottle of liquor from abroad implemented in 2019 was also said to have been under pressure from big alcohol importers.

The Mobile Importers’ Association says up to 30% of phones in Nepal have been brought in illegally. And once the MDMS is implemented, it estimates up to Rs28 billion worth of phones will be imported in 2023, and the government will benefit from taxing it.