Chinese airlines are reportedly refusing to pay Nepal’s value-added tax (VAT), accumulating a debt of NPR 4 billion (USD 29.5 million) since Nepal revised its Finance Act in mid-2023 to impose VAT on international air services. While most foreign airlines have complied, four major Chinese carriers—Air China, China Eastern Airlines, China Southern Airlines, and Sichuan Airlines—have not.

A finance ministry official emphasized that all foreign airlines must adhere to Nepal’s tax laws, pointing out that Nepalese entities operating abroad follow similar regulations. “Special exemptions cannot be granted to Chinese airlines,” the official stated, underscoring the principle of equal application of Nepal’s tax system.

However, the Chinese Embassy has reportedly intervened, lobbying the Nepalese government to waive the tax. It claims that levying VAT on foreign carriers contradicts international norms and could harm bilateral relations and inbound traffic flows.

Currently, these Chinese airlines operate regular flights connecting Kathmandu to major Chinese cities like Chengdu, Guangzhou, and Kunming. Despite their pivotal role in air connectivity, the embassy’s stance has sparked debate over fair tax compliance versus diplomatic concessions.

The Nepalese government remains firm on its stance, asserting reciprocity in tax practices and rejecting requests for preferential treatment. Whether the debt will be waived or enforced is now a matter of diplomatic and economic contention.