On June 23, the Supreme Court vacated its earlier interim order which barred the tax authorities from recovering unpaid taxes from controversial businessman Ajeya Raj Sumargi’s Nepal Satellite Telecom. The decision meant tax authorities could recoup capital gains tax from Sumargi’s telecom company.

But more than a month later, tax authorities have said they are finding it difficult to recover tax from Sumargi as a final verdict is due.

The tax authority has determined a tax liability of Rs4.31 billion for Sumargi after he failed to pay capital gains tax when he sold 75 percent shares of his company to the Cyprus-based Airbell Service, which was later bought by Teliasonera, the previous owner of Ncell, a private sector telecom giant in Nepal. The company had not paid capital gains tax when the transactions took place seven years ago.
“We have decided to wait until the Supreme Court’s final verdict,” said Lal Prasad Pangeni, chief of the Inland Revenue Office, New Baneshwor, which had determined the tax liability for Nepal Satellite Telecom. “Without the final verdict of the court, there is confusion over how to move ahead to recover the tax dues from Sumargi.”
It is not clear when the Supreme Court will pass its final verdict on the case.
The tax authorities’ move of not recovering tax dues will contribute to reduced tax collection at a time when the government is facing a huge shortfall in revenue collection against the target.

As of mid-April, the government was facing a revenue deficit of Rs86 billion against the target. The Inland Revenue Department, which is responsible for collecting revenue from domestic transactions, said the office is likely to see a shortfall of tax collection by around Rs50 billion against the target.

As of July 16, the department collected Rs 341 billion in revenues and with additional collection on Tuesday, the final day, tax collection by the department is expected to reach Rs355 billion. The department had received a target of Rs404 billion for the current fiscal year 2018-19.

“Had there been collection from Nepal Satellite Telecom and Ncell, it would have been easier for us to meet the revenue target,” said an official of the department on condition of anonymity because he was not allowed to speak to the media.
Besides freezing the bank accounts of a number of taxpayers with huge tax dues, the government had sought to recover tax dues from both telecom companies in a bid to make up for the shortfall in revenue collection.
But both companies moved the court, challenging the revenue claims by the tax authorities which then failed to recover tax from both companies.

Against tax determination by the tax office, Nepal Satellite Telecom had moved the apex court on May 15. A single bench of Justice Bam Kumar Shrestha on May 22 issued an interim order, preventing the tax authority from recovering the unpaid capital gains tax. But, on June 23, a joint bench of Justices Susmalata Mathema and Manoj Kumar Sharma decided to vacate the interim order, paving the way for the tax authority to raise the unpaid taxes.

According to the Inland Revenue Department, Sumargi had sold his stake in Nepal Satellite Telecom for Rs5.63 billion, but failed to pay capital gains tax amounting to Rs1.4 billion (25 percent of the transaction amount per the law). But charging Sumargi of deliberately defaulting on taxes, the tax authority determined his tax liability by incorporating both fines and interest.

But Sumargi’s company had argued in a press statement that the tax authority could not determine tax on the company four years after the transaction.
Sumargi’s transactions over the years have landed in controversy and authorities have been looking into them, suspecting money laundering.

In January, an investigation led by the Centre for Investigative Journalism Nepal and the International Consortium of Investigative Journalists revealed that Sumargi had laundered money through Airbell and two other offshore companies—Zhodar and Tipologia—on the guise of foreign direct investment.