The Supreme Court has ordered the Sushila Karki administration not to implement its decision to grant tax exemptions to the Dolma Impact Fund, contending that the move is prima facie inconsistent with the Income Tax Act 2002 and the Treaty Act 1990.

A division bench of justices Mahesh Sharma Poudel and Bal Krishna Dhakal continued its last month’s interlocutory order after hearing the claims and counterclaims from the plaintiffs and defendants. Responding to a writ petition by Bhesh Raj Luitel, a lawyer, a single bench of justice Poudel, on January 8, had issued the short-term order, which got a continuation on Thursday.

The Post on November 5 carried an exclusive story exposing how the interim government, flouting the legal instruments, decided to exempt the tax on the Dolma Impact Fund, which has channelled its investment into Nepal through a “shell company” registered in Mauritius, a tax-haven country. Following the report, Luitel filed the petition at the top court seeking its intervention to halt the decision, which would result in the loss of hundreds of millions in taxes to Nepal.

The report citing officials at the Inland Revenue Department (IRD) estimated that Dolma could be liable for Rs 12-15 billion in taxes.

On October 14, 2025, IRD decided to grant a tax exemption to Dolma under the Double Taxation Avoidance Agreement (DTAA) signed with Mauritius. The division bench, however, has claimed that such agreements between the two countries do not have legal validity in lack of parliamentary endorsement.

The order cites Section 9(1) of the Treaty Act, which states that if a treaty to which Nepal or the Government of Nepal is a party—approved, ratified, accepted, or supported by Parliament—conflicts with prevailing domestic law, the treaty provisions prevail to the extent of the conflict. “Only treaties endorsed through legislative processes have legal validity,” said the division bench.

Therefore, if treaty provisions conflict with national law, the domestic law prevails, according to the court order. As a result, the Impact Fund is required to pay taxes in accordance with existing laws.

“Prima facie, the decision to exempt the tax constitutes an apparent error of law under the Income Tax Act 2002 and the Treaty Act 1990,” reads the interim order. “Given the risk of irreparable damage to government revenue, the court found it appropriate not to issue an interim order halting implementation of the decision in the interest of maintaining a balance of convenience [a legal test used by courts to determine whether to grant an interim or preliminary injunction].”

Dolma, which has invested in 14 Nepali companies, had long sought this exemption. The issue had been under discussion between the Inland Revenue Department (IRD) and the Ministry of Finance for years, but successive governments had refrained from approving it after repeated warnings from tax officials.

Dolma has invested in Nepal in two phases—$36.6 million (about Rs5 billion) in Phase I and $71.96 million (around Rs10 billion) in Phase II—over half of which has already been deployed.

Its investors include institutions from Switzerland, Japan, the United Kingdom, the Netherlands, and the United States—countries that do not have DTAAs with Nepal.

Yet, Dolma has relied on the Nepal-Mauritius treaty to seek exemptions on dividends and capital gains from share sales.

A shell company like Dolma’s Mauritius-based entity typically exists only on paper, registered in jurisdictions offering tax loopholes. Such firms lack real operations or assets and are often used to obscure the true origin of investments.

The Panama Papers leak in 2015 exposed several Nepali businesses using similar entities, prompting Nepal Rastra Bank to bar transactions with such companies and require banks to report any prior dealings.

Dolma Impact Fund I, registered in Mauritius with Permanent Account Number 27277219, has invested in at least six Nepali companies, including Sasto Deal, Swet Ganga Hydropower, Makar Jitumaya Suri Hydropower, Solar Farm, Rhododendron Biotech, and Nidan Hospital.

Dolma Impact Fund I holds 2,605,900 shares in Makar Jitumaya Suri Hydropower Company Ltd. These are founder shares purchased at a face value of Rs100 per share. On Tuesday, the company’s shares were traded at Rs552 per share in the secondary market of Nepse. Even if sold at this rate, Dolma would make a profit—or capital gain—of Rs1.17 billion.

Its wider portfolio includes WorldLink, Century Masala, Foodmandu, Chirayu National Hospital, and several hydropower projects—reflecting its deep presence in Nepal’s investment landscape.