Tuesday, April 9, 2019

Supreme Court orders Ncell, Axiata to pay CGT within three months

The Apex Court ordered Ncell and Axiata companies to pay capital gains tax (CGT) with interest to the government within 3 months after 'necessary evaluation'. Issuing the full text of the verdict on the years-long tax dispute today, the Supreme Court has also ordered the government to halt company’s buyout, sale of shares and distribution of bonus until it pays the CGT.
The full bench of Chief Justice Cholendra SJB Rana and Justices Meera Khadka, Bishwambar Shrestha, Ananda Mohan Bhattarai and Tanka Moktan, on February 7, had issued a mandamus order in the name of defendants Ncell and Axiata to pay the CGT, which they had avoided paying when Ncell shares changed hands three years ago. The Supreme Court had ordered the defendants that it was the responsibility of Ncell and Axiata to pay CGT on February 7.
The Court stated that Section 57 (1) of the Income Tax Act-2058 makes Ncell and the Axiata responsible for paying the CGT and not Telia Sonera, though Ncell has been claiming that the responsibility of paying CGT lies on the seller the TeliaSonera.
In April 2015, Malaysian company Axiata had bought Reynolds Holdings, which held a majority share in Ncell, from TeliaSonera for $1.03 billion. Reynolds Holdings – a wholly-owned subsidiary of TeliaSonera and believed to be registered in the tax haven of Saint Kitts and Nevis – had appreciated to over Rs 105 billion then.
The civil society members, who filed the case, claimed in their writ petition that taxes had been evaded while transferring the management from TeliaSonera to Axiata.
The Court, meanwhile, annulled writ petitions filed on behalf of Ncell and Rhynolds Holdings, claiming that they did not have any further liability to pay capital gains tax.
Ncell has already deposited Rs 23.57 billion in two installments as an applicable tax on the profit generated through the sale of the telecom company. It paid Rs 9.97 billion in May 2016 on the basis of its own calculations. It again paid Rs 13.60 billion on June 4, 2017.
TeliaSonera – a Swedish-Finnish company – has not paid any capital gains tax (CGT) on the sale of its 80 per cent share in Ncell to Malaysian company Axiata in April 2015. The listed company of the country that teaches the world about the transparency and good practice in business ran away without paying the CGT in a poor and third world country Nepal. As of June 17, 2017, the due tax amount was Rs. 60.71 billion. "It will be recalculated CGT and interest including the fines and the actual amount will be decided soon," according to the large tax office (LTO).
The controversy came to surface after the government – particularly the Inland Revenue Department (IRD and its entity LTO, did not assess the tax and also issued conflicting statements on the matter. First the IRD remained silent on who was liable for paying the tax of the profits earned from the business and services generated from Nepal but after TeliaSonera, the Swedish company, went out of the country, top government officials including the then Prime Minister Pushpa Kamal Dahal stated that the seller is liable to pay the tax, which meant Ncell wasn’t responsible.
The Court has also asked Office of the Attorney General to submit the court verdict to the defendant and execute the verdict. The Office of the Auditor General, in 2017, concluded that the profits earned from the buyout deal was taxable. It prompted concerns as to why the successive governments were not working sincerely to collect the tax from the companies concerned.

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