Ride-Sharing Fares Set To Rise From Shrawan 1 As Government Adds VAT And Driver TDS

KATHMANDU, July 15 — Ride-sharing fares in Nepal are expected to rise from Shrawan 1 after the government moved to collect 5% VAT on every ride-sharing transaction and deduct 1% TDS from drivers, a policy aimed at bringing the fast-growing digital transport sector into the tax system but also raising concerns over fare hikes, driver earnings, and implementation clarity.

New Tax Rule From Shrawan 1

The new tax provision will come into effect from Shrawan 1. Under the system, ride-sharing companies will have to collect 5% VAT on each transaction and deduct 1% TDS from drivers.

The Inland Revenue Department has said preparations for implementing the new tax system have been completed.

The 5% VAT on ride-sharing services was introduced through the Government of Nepal's annual budget and Finance Bill for fiscal year 2083/84, presented on Jestha 15, 2083 (May 29, 2026). Aimed at expanding tax collection from digital and platform-based businesses, the new tax provision will come into effect on Shrawan 1, 2083 (July 17, 2026). 

Six Percent Tax Impact On Each Ride

The total tax impact on each ride-sharing transaction will be 6%. Out of this, 5% will be collected as VAT, while 1% will be deducted as TDS under the driver’s name.

The VAT cost is expected to be passed on to passengers, meaning ride fares are likely to become costlier. The TDS will be deducted from the driver’s side and recorded under the driver’s tax account.

For example, if a passenger pays Rs. 100 for a ride, Rs. 5 will be collected as VAT, and Rs. 1 will be deducted as TDS. This calculation does not include the commission charged by the ride-sharing platform.

Drivers Must Have Personal PAN

Drivers will need to be registered under a personal PAN for TDS deduction. However, they will not need separate VAT registration.

Ride-sharing companies will be responsible for collecting the tax amount and depositing it at the tax office by the 25th day of every month.

Companies have also started asking drivers to update their PAN details to comply with the new rule.

Taxi Fares To Rise, Motorcycle Fares Under Review

The new tax rule is expected to directly affect ride fares. Pathao Nepal has said taxi fares will increase by 5% once the VAT rule comes into effect.

The company has said the possible increase in motorcycle ride fares is still under study. Any increase in motorcycle fares will depend on how the added tax burden is applied and how much of it is passed on to passengers.

Government Eyes Rs. 1.2 Arba Revenue

Nepal’s ride-sharing market is estimated to record more than Rs. 20 Arba in annual transactions. Based on the new 6% tax structure, the government expects to collect around Rs. 1.2 Arba in annual revenue from the sector.

The move is part of a wider attempt to bring digital mobility services into the formal tax net, track platform-based transactions, and increase government revenue from emerging digital businesses.

Concerns Over Timing And Clarity

While the government’s goal of formalizing the ride-sharing sector is being seen as reasonable, concerns have been raised over the timing and design of the tax policy.

Industry policy voices have argued that the government should first clarify key implementation questions before enforcing the new taxes. These include whether VAT applies to the full fare paid by passengers or only to the commission retained by platforms, and whether TDS should be calculated on the total fare, gross driver earnings, or net driver payout after commission.

Such questions are important because they determine who ultimately bears the cost: passengers, drivers, or platforms.

Possible Burden On Riders And Drivers

If platforms pass the VAT directly to passengers, ride fares will rise. If platforms absorb the cost, their margins and investment capacity may be affected. If drivers bear part of the burden, their earnings could decline.

Drivers may technically be able to adjust TDS against future tax obligations, but many drivers may not fully understand the tax credit process or may face additional compliance difficulties.

For passengers, the fare hike comes at a time when household costs are already under pressure. For drivers, even a small deduction can matter because many rely on ride-sharing as either a primary income source or an additional income stream.

Platforms Need Time To Prepare

The implementation timeline has also become a concern. Ride-sharing companies will need to update payment systems, invoicing processes, driver payout structures, tax reporting systems, accounting processes, and customer communication channels.

Tax-related system changes require testing and clear legal guidance. Without detailed instructions, platforms could face confusion while implementing the rule, especially if the taxable amount and reporting method are not clearly defined.

Formalization Or Added Pressure?

The new tax rule marks a major shift for Nepal’s ride-sharing industry, which has grown rapidly in urban areas over the past several years.

Supporters of the policy may see it as a necessary step to formalize a large digital transport market and increase state revenue. Critics, however, argue that the government should consult stakeholders, clarify the taxable base, and provide enough preparation time before full enforcement.

The debate now centers not only on whether ride-sharing should be taxed, but also on how the tax should be applied, who should bear the burden, and whether the new system can be implemented without disrupting drivers, passengers, and platforms.