Court tells authorities not to collect tax from Ncell for the time beingWhen the Supreme Court on April 9 issued the full text of its February verdict on Ncell capital gains tax issue, it was largely believed that the matter was finally put to rest and that the long-drawn-out debate as to who should clear the tax liability—buyer or seller—had come to an end.
When the Supreme Court on April 9 issued the full text of its February verdict on Ncell capital gains tax issue, it was largely believed that the matter was finally put to rest and that the long-drawn-out debate as to who should clear the tax liability—buyer or seller—had come to an end.
In line with the court order, the Large Taxpayers Office on April 16 determined capital gains tax for Ncell and its parent company, Axiata, and asked them to clear the outstanding amount in seven days.
But the mobile company argued the toss and moved the top court on Monday challenging the tax authorities' way of determining the tax.
But the Supreme Court on Thursday passed an interlocutory order and issued a show cause notice to authorities in a move which many say gave a sense that the debate on capital gains tax was still alive.
A single bench of Justice Bam Kumar Shrestha issued a show-cause notice to the Large Taxpayers Office and asked both parties—the tax office and mobile company—to appear before the court on May 6 to discuss the matter.
Supreme Court officials said the interlocutory interim order was issued to the Large Taxpayers Office not to collect the tax until discussions on May 6.
The court order came two days after the seven-day deadline set by the Large Taxpayers Office for Ncell ended.
Ncell capital gains tax is arguably one of the most debated issues in recent times, as a section of the general public has constantly mounted pressure on authorities to recoup the outstanding amount from the private sector mobile company.
Until 2015, TeliaSonera, a Swedish company, owned majority stake (around 60 percent) in Ncell. But in December 2015, in one of the biggest ever acquisition deals in Nepal, Axiata, a Malaysian telecom giant, agreed to buy TeliaSonera’s stake.
At that time, authorities had determined capital gains in the buyout deal at Rs143.6 billion.
TeliaSonera, however, has already exited Nepal.
In February, the full bench of the Supreme Court said the tax liability lay on Ncell—and not TeliaSonera—and asked authorities to determined and recount the outstanding amount within three months. The full text, however, was released on April 9.
Subsequently, the tax authorities determined Ncell’s capital gains tax at Rs62.63billion and told the company to pay Rs39.06 billion, saying it had already paid Rs23.57 billion in 2016 and 2017.
The telecom company, however, moved the court saying its outstanding tax stood at Rs14.36 billion—and not Rs39.06 billion.
In its petition, Ncell said Rs21.54 billion it paid earlier was 15 percent of the total capital gains (Rs 143.6 billion). “Of the 25 percent tax liability, the company has already paid 15 percent and it needs to pay the remaining 10 percent which amounts to Rs 14.36 billion,” the mobile firm said in the petition.
While legal experts appear unanimous that there is no option for Ncell than to abide by the court order and clear dues, they say there is a need to learn a lesson from the whole episode, as it involves offshore transactions.
TeliaSonera, the previous owner of Ncell, was registered in Norway and had maintained a controlling stake in Ncell through Reynolds Holdings Limited registered in Saint Kitts and Nevis, a tax haven in the Caribbean. Although the current foreign investor in Nepal is a Malaysia-based company, it invested here through a company registered in the United Kingdom called Axiata UK.
“The Ncell case has re-emphasised the need to establish clear criteria for taxing offshore transactions,” said Semanta Dahal, an advocate. “The Income Tax Act should be amended so that we do not suffer from Ncell sort of confusion again.”