The fallouts of Ncell

  • Business is politics and politics is business in Nepal

Feb 14, 2019-

With the February 6 apex court verdict asking the government to recover capital gains tax from the buyers Axiata and Ncell, the Nepali media is, once again, rocked by the pending tax issue that is expected to run in billions of rupees. However, a large section of media coverage is so biased, so tilted and narrow with jingoistic interpretations that they baffle any sensible reasoning. The only respite is that they are all agreeing to wait until a full formal court verdict is served before passing judgement on the amounts to be recovered.

The Parliamentary Finance Committee has asked the government to collect the capital gains tax “as soon as possible”. But it is almost certain that  the court verdict is not coming anytime soon. The issue has been pending for more than three years now. More delay means more complications in the days to come. And given the size and scale of the transaction it is definitely not going to be an easy task.

Recently three civil society members who spearheaded the process of filing the case in court had participated in a television talk programme. Towards the end of the programme, the anchor posed a question to each of them: “What would you do with the billions of money recovered?” Of the three participants, one responded, citing the pathetic situation of the country, that the money should be spent on health and education sectors.  The second  participant suggested allocating a billion rupees each to all districts in Nepal.

Finally, the third expert opined investing the money in   the hydro-power development of the country, emphasising “not having to face darkness due to blockades in future” demonstrating a nationalistic streak. One should admire the ingenuity and imagination of these three crusaders. However, it is dangerous to count one’s chicken before they hatch.  Axiata has already reported that they don’t have a liability to pay the capital gains tax to the government of Nepal complicating things further.

Many Nepalis seem to be baffled by the issue because of the size of the transaction, the number of parties involved and the issue of liability of paying capital gains tax from an off shore transaction of a company based in Nepal. To put it all in context, let us consider a hypothetical case. Suppose you are a Norwegian and you owned a piece of land in Nepal, and you transferred the land at a certain profit to a Malaysian having a British citizenship. The whole transaction takes place in Singapore.

Now, the moot question is how will the profits be taxed? Will it be taxed as per the laws in Norway, Britain, Singapore or Nepal? Who will be responsible to pay taxes on capital gains—the seller or the buyer?

There seems to be an agreement that it is the responsibility of the seller to pay capital gains tax. In the case of Ncell, as Telia has already exited from Nepal, the onus lies on the buyer or Axiata. As I understand, Telia never refused to pay taxes; it agreed to pay taxes in Norway, where its subsidiary Reynhold Holding—the share owner of Ncell is registered.  There is also a wide difference in applicable capital gains tax rate in Nepal and Norway.  A tax agreement exists between the two countries. In the absence of the seller—Telia in this case, a court order to extract capital gains tax from the buyer—Axiata—is amusing. Some media has resorted to derogatory but

ludicrous arguments like Telia Nepal bata bhageko, literally meaning, Telia escaped from Nepal.

It is also interesting to note that, as Axiata reported, it has informed the Large Tax-payers’ Office (LTO) before it enter into a sale-purchase agreement with Telia. Earlier, some weeks before the court verdict, there was news that Axiata too is seeking to exit from Nepal. It will be interesting to watch the impact of the court verdict on Axiata’s exit plan from Nepal as well as it is going to shift capital gains tax responsibility to a new buyer.

But a more interesting issue to unfold is: What will happen to the earlier transactions related to Ncell share ownership transfers or similar other offshore transactions? In the past, Ncell share ownership has been passed over a dozen times i.e. cases of capital tax evasion abound.

Shall we treat bygones as bygones or will the court verdict be retroactively applied? Given the size of the money involved, Ncell  capital gains tax scandal can very much be expected to be another “lawyers’ paradise” in Nepal. It will not be surprising if one day, all broadsheet newspapers in Nepal will have Ncell sponsored jacket advertisements with the PM’s photo and a message. This is because business is politics and politics is business in Nepal.

Manandhar is a freelance management consultant.

Published: 14-02-2019 12:19

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