Ministers have criticised the Cabinet’s decision to give a clean chit to Ncell over its capital gains tax controversy saying that tax related issues were beyond its jurisdiction.

Despite objections from various ministers, Wednesday’s Cabinet meeting, under the prime minister’s direction, endorsed the proposal presented by Deputy Prime Minister and Finance Minister Krishna Bahadur Mahara that capital gains tax should levied on TeliaSonera, the seller of Ncell, instead of the current owner of the private telecom giant. 

“It is not the duty of the Cabinet to decide who should pay the tax. We have tax authorities and institutions to make such decisions,” said former finance minister Ram Sharan Mahat. “When the Cabinet makes such decisions, it shows how weak our institutions have become.” 

Various ministers who attended the Cabinet meeting had similar views. Foreign Minister Prakash Sharan Mahat, Health Minister Gagan Thapa and Energy Minister Janardan Sharma opposed Mahara’s proposal saying that tax related issues don’t come under the Cabinet’s jurisdiction. 

However, Prime Minister Pushpa Kamal Dahal and Deputy Prime Minister and Home Minister Bimalendra Nidhi supported Mahara’s proposal. “I have received an application from Ncell to sort out the capital gains tax issue,” a reliable source present at the meeting quoted Prime Minister Dahal as saying. “This issue must be sorted out soon as it will affect foreign investor confidence in Nepal.”   

The finance minister’s proposal does not explain how the government will bring TeliaSonera, the previous owner of Ncell, under the tax bracket as it has already left the country, the source added. 

The Large Taxpayer’s Office (LTO) refused to make any comment saying it hadn’t received a copy of the decision from the Cabinet. “We are unaware of the decision made by the Cabinet,” said LTO Chief Balram Rijal. “Currently, we are in the process of making a tax assessment of the deal. But we will respect the government’s decision.”  

In a record deal struck in April, Malaysia’s Axiata bought Reynolds Holding, which held a majority stake in Ncell, from Swedish-Finnish company TeliaSonera at an enterprise value of $1.03 billion (approximately Rs103 billion). Reynolds Holding was TeliaSonera’s wholly-owned subsidiary and registered at Saint Kitts and Nevis, a tax haven.   

Tax authorities moved to tax the transaction only after TeliaSonera had left Nepal. The LTO had written to TeliaSonera asking it to submit tax details, but the company argued that the deal was not taxable in Nepal. After getting such an answer from TeliaSonera, the LTO went after Ncell and asked it to file a tax return by May 7. 

The Cabinet’s decision has come as a relief to Ncell whose various business plans, including the launch of fourth generation mobile service, have been put on hold after the Finance Committee under the Legislature-Parliament directed the government to stop it from expanding its business until the capital gains tax issue was resolved.