Ncell deposits Rs13.6 b in due capital gains tax

- SANJEEV GIRI, Kathmandu

Jun 5, 2017-

Bowing to pressure and criticisms from a cross section of society, elecommunications service provider Ncell on Sunday deposited an additional Rs13.6 billion as part of the tax applicable on the profit generated through sale of the telecom company.

The amount deposited by Ncell is part of the 15 percent withholding tax, or tax deductible at source for capital gains.

In May last year, the company had paid Rs9.97 billion as 15 percent withholding tax. It had filed the tax return based on its own calculations.

“It paid the additional amount after reviewing the tax return filed earlier,” sources said.

With this, the company has deposited Rs23.6 billion in total in capital gains made from the Ncell buyout deal.

The government still needs to collect the remaining 10 percent of the capital gains tax.

Considering the revised tax estimate, the total capital gains tax on the Ncell buyout deal stands at Rs39.3 billion. This means the government still needs to recover Rs15.7 billion from the deal.

“A company can recalculate its tax liability even after depositing the tax amount,” said Chandrakala Paudel, spokesperson for the Inland Revenue Department (IRD).

This means Ncell can review its tax return again and make necessary adjustments.

The tax authority, however, has the right to determine the tax amount and direct the company to fulfil the tax obligation.

The Large Taxpayer Officer (LTO) under the IRD has not determined the total taxable amount in the biggest corporate deal in the history of Nepal.

In a record deal struck in April 2015, Malaysia’s Axiata bought Reynolds Holding, which held a majority stake in Ncell, from the Swedish-Finnish company Telia at an enterprise value of $1.03 billion (approx Rs103 billion).

Reynolds Holding was Telia’s wholly-owned subsidiary, registered at Saint Kitts and Nevis, a tax haven.

According to the Income Tax Act of Nepal, foreign investors are liable to pay 25 percent as capital gains tax.

Of this amount, 15 percent of the applicable tax should be left at the company that was sold while the remaining 10 percent of the amount should be paid by the seller.

This means Ncell is subjected to pay 15 percent of the capital gains tax while the remaining 10 percent should be paid by Telia.

Though capital gains needs to be paid by the company that gains from the deal, which in this case is Telia, the company has already exited Nepal.

This is why a number of authorities are of the view that the remaining 10 percent too needs to be paid by Ncell that has earned lucrative profits from its operations in Nepal, if Telia refrains from depositing the amount.

In a statement issued on Sunday, Ncell claimed: “Based on the total advance deposit placement by Ncell to date, the Large Taxpayer Office in its confirmation letter to Ncell conclusively certified and acknowledged that Ncell has fully complied with the direction of depositing advance tax pursuant to Section 95A of the Income Tax Act, and the company is now fully cleared in relation to the Transaction which attracted capital gains tax under the Income Tax Act.”

The latest development comes at a time when the Commission for Investigation of Abuse of Authority has arrested IRD Director General Chudamani Sharma on the charge of misappropriating revenues and settling taxes in a questionable way.

Sharma had initially stated that the Ncell buyout deal will not be subject to capital gains tax as Telia, the seller of the company, was based in Norway with which Nepal has signed a double taxation avoidance agreement. 

Sharma had later changed the position and stated that the government had found firm bases for recovering the tax.

Published: 05-06-2017 08:07

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