Kathmandu, May 6

The new owner of Ncell, the largest private sector telecom company in Nepal, has broken the silence on taxation issue surrounding the Ncell buyout deal, saying it would resolve the issue very soon.

This is an indication that Ncell is willing to pay applicable capital gains tax on the deal as per the rules of the country.

Although the tax burden on buyout deals does not rest on buyer’s shoulders, the new Ncell owner has decided to bear the responsibility to quash rumours that attempts are being made to evade taxes to the tune of tens of billions of rupees.

“We are responsible corporate citizens ... and we will resolve the issue soon, although the matter is the responsibility of the seller of shares,” said Simon Perkins, a British national who was recently appointed as the managing director of Ncell by Axiata, a Malaysian telecom giant, which bought 80 per cent stake in Ncell from Sweden-based TeliaSonera and SEA Telecom on April 11.

The latest announcement from Ncell comes a day ahead of the expiry of deadline on filing return on gains made through the deal.

Earlier, the Large Taxpayers’ Office (LTO) had instructed Ncell to file the tax return by May 7. But since May 7 falls on a public holiday, the LTO has allowed Ncell to submit all required documents by Sunday, May 8.

Ncell has said it will compute liabilities and file tax return at LTO by Sunday.

Once the documents are submitted, the LTO will crosscheck calculations made by Ncell and instruct the telecom company to deposit the amount in state coffers.

The government is expected to generate tens of billions of rupees in revenue from Ncell share divestment, as 80 per cent of the stake in the telecom company, which has a paid-up capital of only Rs 100 million, was sold for $1.365 billion (approximately Rs 145.59 billion).

As per the Income Tax Act, 25 per cent of the gain made from the transaction will be subject to tax — although the cost involved in share transaction can be deducted while computing the due tax amount.

Although the initiative taken by Ncell to resolve the taxation issue is likely to put the lid on controversy surrounding the biggest takeover deal in Nepal’s history, what is still not clear is whether TeliaSonera or Ncell would fork out the money to settle the tax bill.

“It’s actually the responsibility of TeliaSonera to pay the tax because it is the firm that sold Ncell and generated profit,” a high-ranking LTO official told The Himalayan Times on condition of anonymity.

Based on this understanding, the LTO had written twice to TeliaSonera, directing it to file income statement and tax return. But TeliaSonera responded saying ‘such tax return should not be filed since the transaction is not subject to tax in Nepal’.

“This shows TeliaSonera’s uncooperative attitude. This is the reason why we had to go after Ncell,” the LTO official said, adding, “Also, TeliaSonera is not a company based in Nepal and chief executive officer and chief finance officer appointed by it have left the country. So, we have no choice but to deal with Ncell.”

Kttnowing such a situation might arise, Axiata had sought advance tax ruling on taxation issue from Inland Revenue Department (IRD) right after it announced its plan to purchase Ncell in December.

“We consistently followed up for the same till closing of the transactions. Had the IRD issued the ruling, we would have discussed the matter with the seller then. But that did not happen,” said Perkins.

By seeking the advance ruling, Axiata was trying to get a clear signal on whether the buyout deal would be subject to capital gains tax. Such a ruling was sought because many had started to interpret the provisions in the Income Tax Act in their own manner, dividing opinions on whether the government could impose tax on the deal that had taken abroad.

At that time one school of thought said the law was very clear on imposing capital gains tax on shares divested by Nepalis and foreigners, while the other said provisions were not clear on overseas transactions.

Around this time, the taxman also came under influence of one group that said advance tax ruling should be sought by the one who is divesting the shares, not by the one who is purchasing the stake. The issue was, thus, politicised and the IRD chose to stay mum.

It is also said key officials of TeliaSonera and Axiata who had visited Nepal before the change in ownership structure were led into believing that taxes would not be levied on the transaction. Such assurance, according to reliable sources, was given by the prime minister, the finance minister and director general of the IRD.

“This kind of assurance also played a key role in making Ncell buyout deal controversial,” the source said.