Amid controversy over whether Swedish-Finnish telecom operator TeliaSonera, which sold Ncell to Malaysia’s Axiata, has to pay capital gains tax (CGT) to the government, Ncell has applied with the Department of Industries (DoI) to raise its authorised capital.

Ncell has submitted a proposal to DoI to increase its capital to Rs155.33 billion from Rs17 billion, according to a highly-placed government source.

“Although, the telecom operator has already increased its capacity and capital internally, it has submitted the capital increment plan to formalise it legally,” said the DoI source.

“Discussions are under way at the department and the Industry Ministry, and officials are not sure whether to move ahead with the proposal.”

Government officials are not sure whether to approve the proposal as the GCT issue is yet to be resolved.

In a record deal, Axiata had bought Reynolds Holding, which held 80 percent stake in Ncell, from TeliaSonera at an enterprise value of $1.03 billion in an offshore deal.

Reynolds Holding is registered in Saint Kitts and Nevis, a tax haven.

Although TeliaSonera formally announced on April 12 that the divestment had been formally completed, it had said nothing about CGT.

However, upon receiving a letter from the tax authority in Nepal with a request to submit a tax return and pay the applicable CGT regarding the divestment of the shares in Ncell, TeliaSonera has been claiming the transaction is not subject to tax in Nepal.

Large Taxpayers’ Office, however, is trying to bring Ncell deal to tax bracket and is looking for the legal ground to make Ncell pay the tax under the existing Income Tax Act as TeliaSonera has already exited the country.

Because of the CTG fiasco, officials at the department and ministry are reluctant to initiate a process to approve Ncell’s capital increment plan, according to the DoI source.

The proposal will be presented at a meeting of the Industrial Promotion Board (IPB), chaired by Industry Minister.

The source claimed there has been internal homework to approve Ncell’s proposal through the IPB meeting.

After the capital increment plan is approved, it will make the way for repatriation of the dividend by Renyolds Holding which was halted by the DoI and Nepal Rastra Bank (NRB).

“It seems the capital increment plan is to pave the way for repatriating the bonus,” said the source.

“Ncell could, however, use the dividend amount for capital increment in Nepal too,” he added.

Ncell has announced to distribute dividend worth Rs11 billion from the profit of fiscal year 2011-12.

With foreign investors holding 80 percent stake, it had tried to repatriate Rs8.80 billion which is 80 percent of the dividend announced.