SC orders recovery of capital gain tax from Ncell

The Supreme Court (SC) has ruled that the government should recover the capital gain tax on sale of Ncell from the telecommunication company and its majority shareholder Axiata.

An extended full bench headed by Cholendra Shumsher Rana on Tuesday has ordered that the capital gain tax be recovered from Ncell and Axiata. “The verdict has come ruling that Ncell and Axiata have the capital gain tax liability as Axiata has effective control,” communication expert at the SC Kishore Paudel told Setopati.

The full bench including Justices Meera Khadka, Bishwambhar Shrestha, Ananda Mohan Bhattarai and Tanka Moktan hearing a petition filed by Dwarika Nath Dhungel demanding the capital gain tax be recovered from Ncell has issued a mandamus ruling that Ncell and Axiata should pay the tax.

The mandamus reasons that Ncell has to pay capital gain tax to the Nepal government despite TeliaSonera selling the shares to Axiata as its business is based in Nepal.

The SC also revoked the petitions by Ncell arguing that it should not pay capital gain tax, and by Devendra Prasad Nhuchhe on behalf of Reynolds Holding arguing that Neal government cannot extract capital gain tax on the sale.

Swedish-Finnish company TeliaSonera has not paid capital gain tax for sale of its 80% stake in Ncell to Malaysian company Axiata in April 2015.

The Large Taxpayers Office had determined that Ncell has to pay Rs 60.71 billion in capital gain tax including fines calculated on June 17, 2017.  A capital gain tax of Rs 35.91 billion was determined for the sale and it came out to Rs 60.71 billion including the fines until June 2017.

The Large Taxpayer Office in the past had written to the Nepal Rastra Bank (NRB) to freeze TeliaSonera’s bank accounts. But an interim order by the SC on December 18, 2017 revoked that allowing TeliaSonera to take the money.

Malaysian company Axiata had bought Reynolds Holding, which held a majority stake in Ncell, from the Swedish-Finnish company TeliaSonera for $1.03 billion (over Rs 105 billion) in April 2015. Reynolds Holding was TeliaSonera’s wholly-owned subsidiary, registered at Saint Kitts and Nevis, a tax haven.

The Income Tax Act of Nepal requires foreign investors to pay 25 percent in capital gains tax. Of this amount, 15 percent is left at the company that was sold while the remaining 10 percent should be paid by the seller. This means Ncell has to pay 15 percent of the capital gains tax while the remaining 10 percent should be paid by TeliaSonera.

Though capital gains needs to be paid by the company that gains from the deal, TeliaSonera has already exited Nepal.

Ncell has already deposited Rs 23.57 billion in two installments as tax applicable on the profit generated through sale of the telecom company. It had first paid Rs 9.97 billion in May, 2016 in tax return based on its own calculations. It had then paid Rs 13.60 billion on June 4, 2017 bowing to intense pressure and criticisms from a cross section of the society.



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