House panel to govt: Recover taxes from Ncell immediatelyThe Parliamentary Public Accounts Committee has asked the government to immediately recover the outstanding capital gains tax from the Ncell buyout deal that was completed in April 2016.
The Parliamentary Public Accounts Committee has asked the government to immediately recover the outstanding capital gains tax from the Ncell buyout deal that was completed in April 2016.
The Large Taxpayers’ Office (LTO) on June 28 determined that the capital gains tax worth Rs 60.71 billion to be levied on the deal, giving clarity to the government over the tax issue that had been dragging on ever since Swedish company Telia sold its stakes in Ncell to Malaysian company Axiata.
“We have directed the Finance Ministry to immediately recover the remaining Rs37.15 billion from Telia and inform the committee about it,” said Dor Prasad Upadhyay, chairman of the committee.
A House committee meeting on Thursday also directed the ministry to initiate an inquiry on the government officials and the taxmen involved in the Ncell deal. “We have also directed the ministry to submit the details about organisations responsible for determining the tax amount, time frame within which such determination should have been done, officials who were supposed to determine the tax and officials who allowed the share transfer during the deal,” said Upadhyay. “All these institutions and officials should come under investigation.”
Revenue Secretary Shishir Kumar Dhungana, who was present at the meeting, informed the committee that the tax recovery is in the process. “Income Tax Act of Nepal allows the taxpayer time duration of 35 days after the tax assessment to submit the tax or apply for the review. Therefore, we will have to wait for 18 days before recovering the tax amount,” said Dhungana. “If Telia fails to submit tax within that time, we will freeze its bank accounts and recover the amount.”
Tax authorities have stated that Ncell has a reserve of around Rs57 billion in Nepal as of the fiscal year 2015-16 and the company maintains escrow account worth $160 million (Rs16 billion) overseas. “So the authority may recover tax if Telia fails to comply with the government directive.”
In a record deal struck in April 2016, 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. The tax authority has estimated that Telia is liable to pay Rs35.91 billion in capital gains tax in Nepal, referring to the law that states that 25 percent of the profit made from the buyout deal must be deposited in the form of capital gains tax.
Since Telia failed to deposit the tax amount at the time of sales of the asset, the taxman here holds the right to impose a fine equivalent to 50 percent of the tax amount. On top of this, the taxman can also levy 15 percent interest on the due tax amount. Based on this, Telia will have to pay Rs18.06 billion in fine and around Rs6.73 billion in interest.
With Ncell already paying 15 percent of the tax on behalf of Telia, the company may not have to bear the entire financial burden.
Ncell has so far deposited Rs23.6 billion of which Rs9.97 billion was deposited in May 2016 and the remaining Rs13.6 billion in the first week of June, days after the Commission for Investigation of Abuse of Authority arrested Inland Revenue Department Director General (IRD) Chudamani Sharma on the charge of misappropriating revenues and settling taxes in a questionable manner. Of this amount, Rs2.1 billion covered the fine imposed by the tax office on the company for late payment of tax due.