Ncell capital gains tax issue enters Parliament

- Post Report, Kathmandu

May 7, 2016-

Nepali Congress leader and lawmaker Gagan Kumar Thapa on Thursday tabled a “proposal of public importance” at the Parliamentary Secretariat, seeking discussion on the issue related to capital gains tax (CGT) on Ncell’s ownership transfer and claiming the transaction is taxable as per Nepal’s tax laws.

In a record deal, Malaysia’s Axiata in April bought Reynolds Holding, which held a majority stake in Ncell, from Swedish-Finnish company TeliaSonera at an enterprise value of $1.03 billion. Reynolds Holding was TeliaSonera’s wholly-owned subsidiary, registered at Saint Kitts and Nevis, a tax haven. Only after Teliasonera exited Nepal, the tax authority started initiative to tax the transaction. The Large Taxpayers Office (LTO) has written to TeliaSonera, asking the latter to submit tax details, but the company has been reluctant to pay the tax arguing the deal is not taxable in Nepal.

In his proposal, Thapa has sought a parliamentary instruction to the government to tax the deal arguing the government could raise a significant revenue from the transaction that is worth more than Rs100 billion. “A similar case related to foreign investment could emerge in the future too,” read Thapa’s proposal. “So it is necessary to set a system, standard and other necessary provisions in line with the Income Tax Act, international practices and long-term interest of the nation.”

Thapa said as the Parliament is a body that makes laws, it is responsible for adopting a clear legal provision regarding such an issue. “TeliaSonera exploited the loopholes in the laws to not pay the tax, so the parliament should make sure such loopholes are plugged,” he said, adding a clear message about Nepal’s legal provision should be sent to foreign investors. 

“Foreign investors should get a clear message as to why Nepal is an attractive place to invest and why they cannot exploit this country in the name of bringing investment,” he told the Post, adding his move is also aimed at making the government more accountable to the Parliament given the Parliamentary Public Accounts Committee has already instructed the government over this issue.

As per the existing law, share transfer of any telecommunication company cannot happen without the approval of Nepal Telecommuni-cations Authority (NTA). “The approval of the authority has not been acquired in the case of Ncell’s share transfer,” the proposal read. “It is unfortunate that the regulatory agencies—NTA, Office of Company Registrar and Department of Industry—could not coordinate.”

“Ncell was the only company under Raynolds Holding, which means indirect transaction Ncell shares has happened,” Thapa said.

He also argued the Income Tax Act has a clear provision that the Ncell deal is subjected to CGT.  

The Income Tax Act cause 67 has a provision that a person’s income from any employment, business, or investment shall be treated as having a source in Nepal if it was made in respect of activity conducted in Nepal. In such a situation, even if non-resident companies transfer shares of a Nepal-based company abroad, the transaction is subjected to capital gain tax in Nepal.” 

Published: 07-05-2016 08:52

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