‘We’ve met the obligation; now, it’s time to move on’

On December 21, Axiata Group Berhad (Axiata), through its wholly-owned subsidiary, Axiata Investments (UK) Ltd, entered into a ‘conditional sale and purchase agreement’ with TeliaSonera UTA Holdings BV and SEA Telecom Investments BV to acquire 80 per cent stake in Ncell, Nepal’s largest private cell phone service provider, for a whopping $1.365 billion. This was the biggest ever takeover deal in Nepal’s history. But right after the announcement was made, people started speculating whether TeliaSonera (now known as Telia Company) would pay 25 per cent capital gains tax on the deal. At that time, opinions were divided on the tax issue, as one school of thought said Nepal’s Income Tax Act was very clear on imposing capital gains tax on shares divested by Nepalis and foreigners, while the other school of thought said legal provisions were not clear on overseas transactions. As this debate was going on, Axiata, a Malaysian telecom giant with approximately 290 million subscribers in 10 Asian countries, sought advance tax ruling to get a clear signal on whether the buyout deal would be subject to capital gains tax. But the government never issued the ruling. Then, on April 11, Axiata closed the deal, gaining controlling stake in Ncell. After the change in ownership, the Large Taxpayers’ Office wrote twice to Telia, directing it to file income statement and tax return, and deposit the due tax amount. But Telia responded saying ‘such tax return should not be filed since the transaction is not subject to tax in Nepal’. Then the LTO asked Ncell to deposit 15 per cent of the withholding tax, or the tax deductible at source for capital gains, within May 8. Since then, Ncell has transferred Rs 9.97 billion to the state coffers. Rupak D Sharma of The Himalayan Times met Simon Perkins, a British national who has been appointed as the Managing Director of Ncell by Axiata, to discuss why the tax issue became so controversial and initiatives Ncell is taking to receive Rs 9.97 billion that it paid to the government in reimbursement from Telia.

Ncell recently faced a crisis of sorts. Do you think it’s over now?

I hope so. We’ve met our legal obligation to pay the tax deducted at source. We’ve also explained to the tax office how the tax amount was calculated. Although it was a difficult time for us, I think we’re through it now. With the settlement of this issue, I think we can now focus on business expansion. But I guess you know that we made the decision (to pay the tax) even though it was not our responsibility, as capital gains tax should be paid by the seller, not the buyer.

Have you talked about this issue with Telia Company because it is quite clear that Telia, which sold Ncell and made profit, should have paid the capital gains tax, not Ncell?

Yes, for sure. But Telia has always said it doesn’t believe any tax is due in Nepal because of the offshore transaction. So, it’s going to be difficult for us to have that conversation with them. But I’m sure Axiata (which bought the stake in Ncell from Telia) will do that. However, I cannot predict how it’s going to end.

But the money has gone from coffers of Ncell, a company registered in Nepal. Why should a Nepali company shoulder liabilities of Telia, a foreign company?

It’s actually an issue between shareholders. And I’m sure Axiata will raise this issue on Ncell’s behalf. In fact, Axiata has already started this conversation. On our part, Ncell has already written to Telia and asked it to reimburse (the amount we deposited at the tax office). So, we’ve made things very clear to Telia.

The first media statement issued by Telia after the change in ownership at Ncell clearly said ‘risks (related to tax claim) are covered in the agreement’ that Telia and Axiata signed. This shows Telia was well aware that the government would raise the tax issue, isn’t it?

We will now fall back on that agreement to state our claim that Telia should reimburse us.

By the way, what would happen if the tax office says the tax return that Ncell filed is not accurate?

We calculated the tax amount based on information obtained from financial reports made public by Telia. So, the process that we went through to assess the tax liability is very clear and sensible.

Does that mean Telia did not cooperate with Ncell to prepare the documents sought by tax office?

Telia has always held the view that no tax should be paid in Nepal. So, it doesn’t think tax returns should be filed in Nepal as well. But I think Telia will discuss this matter for sure, because it is a big listed Swedish company. I know the conversation is going to be difficult and time consuming. But they will discuss this matter for sure. On the other hand, we did what we needed to do, which was to settle the issue here. It might take us some time to deal with Telia, but that’s okay.

And what does Axiata have to say about this issue?

Axiata had actually sought advance tax ruling after it announced its decision to acquire Ncell public in December. Axiata wanted something in writing to know exactly what would happen after the transaction is closed. But the concerned authorities did not respond. However, officials verbally told Axiata that no tax was payable. So, when a letter arrived from the Large Taxpayers’ Office (demanding submission of estimates of capital gains) a day after we closed the

transaction, it was a major surprise for everybody.

If that had been the case why didn’t Ncell take a legal recourse?

Yes, we could have done that. But then we’d have ended up in a courtroom battle with the government in a country, where we want to operate for many, many years. If you look at the Vodafone case in India, it hasn’t been settled even after 12 years. So, such a situation is neither good for the government, nor businesses.

But why did Ncell remain silent for such a long time despite knowing rumours that Ncell won’t pay the tax had the potential to tarnish its image?

Honestly, it’s not our style to make a big public show. At the time when we first announced our decision to purchase stake in Ncell, we were holding conversation with government officials behind the scene. Then a huge delegation from our Malaysian office visited Nepal to resolve this issue. At that time, we decided to reach out to the media only after it was clear that the issue was going to be resolved.

But by the time Ncell decided to speak to the media, it was too late, wasn’t it?

Maybe. But we had 25 days (to file the tax returns) and we met the deadline.

However, people started speculating and rumours started spreading because of the silence maintained by Ncell. Isn’t that true?

It’s a fair comment. But we did make a conscious decision not to comment on rumours and speculations. From Ncell’s point of view, we’ve met the obligations. Now, it’s time to move on. And in the coming days too, Ncell will continue to remain the largest taxpayer in Nepal. Ncell, so far, has paid approximately Rs 129 billion to the government, in the form of fees, royalty and taxes. And we will continue to pay all the taxes. But again the whole thing could have been avoided if the government had issued advance tax ruling. So far, I haven’t found a real answer to why the ruling was not issued. It wouldn’t have made any difference even if the government had said the tax was payable. If that statement was issued beforehand, we could have prevented the last minute rushing.

You had to face all these problems right after you were appointed as the chief of Ncell. How does it feel?

You face different challenges in different countries you operate. But, frankly, this has been adistraction for us. We were on a high when we entered Nepal, but now the enthusiasm has gone down. So, now we have to get that spirit back, and focus on business and our customers.

So what will be your priorities?

We’ve just made an announcement to invest around $120 million (approximately Rs 12 billion) for the development of telecommunications infrastructure in Nepal in 2016. We will use this money to expand telecommunications network. Many parts of this country do not have telecom signals. So, expanding coverage is very important. We also want to focus on expanding 3G data services in rural areas so that rural population can gain access to internet. So, my

priority would be to build a robust network, provide quality services and launch packages that customers can afford.

You’ve worked in many countries in Asia. What similarities or differences do you find between those countries and Nepal?

The countries most similar to Nepal are Cambodia and Vietnam. Vietnam is probably a bit more advanced, but Cambodia is very similar to Nepal in terms of income level, infrastructure and rural-urban divide. However, the biggest difference between Nepal and Cambodia is the supply situation of electricity. In Cambodia, you can rely on grid power for 50 per cent of the time. Here, it’s not even 50 per cent. This is the biggest challenge and it raises operating cost because we have to rely on diesel generators and other sources for energy. Another big difference between Nepal and Cambodia is data usage. Cambodians consume a lot more mobile data than Nepalis. The difference is largely because of Nepal’s inability to expand 3G network throughout the country. In Cambodia, 3G network has been expanded all over the country and 4G network has been rolled out in the cities. This has provided Cambodians access to faster internet service, which has raised demand for data.

But in Nepal, apart from delay in 3G network expansion, high cost of data services has limited demand for data, isn’t it?

This is the reason why Nepal needs 4G network, as it can bring the price down. 4G network is much cheaper to operate than 3G and 2G networks. I told this to the chairman of Nepal Telecommunications Authority (NTA) during our recent meeting. I told him to let us use the 3G spectrum in rural areas and roll out 4G network in urban areas. But these issues have been held up because of regulatory concerns. I think the government should allow investors to launch services that will ultimately benefit the users and bring down the price of browsing the internet.

By how much can the data price come down if 4G network is rolled out?

The price can come down by around 50 per cent. In Cambodia, for instance, data service costs 50 per cent less than in Nepal. But operating cost in Nepal is higher because of shortage of grid power as well. Yet, 4G will make a big difference in pricing. And that’s what I told the NTA chairman. So, my objective is to raise data consumption by lowering prices, and I’m sure customers will benefit the most out of it.

What did the NTA chairman say?

We just held one meeting. I think we need to hold more conversations on it. We will follow up on the issue because 4G can bring data prices down and offer faster internet service to customers.

What’s the share of data in total revenue of Ncell?

Here, 20 per cent of our revenue comes from data services. In more advanced markets where we operate, that share goes to as high as 50 per cent.

How long will it take to raise data’s share in revenue to 50 per cent?

Probably, two to three years. Share of data in revenue in Cambodia was like in Nepal when I first went there. But it took us only three years to raise data’s share in our income.

Are you also planning to introduce new voice packages?

Recently, we introduced a package which provides free (talk-time) minutes to receivers of overseas calls in Nepal. This service is more like giving money to Nepalis and I think it will benefit them. Also, we have reduced roaming prices for certain countries and I’m planning to reduce those costs in other countries as well. Typically, roaming service packages in countries, where Axiata is present, can be purchased at a fixed price and offer unlimited data service. In Malaysia, for instance, the price is 38 ringgits (approximately $9.42) per day. I also want to introduce packages for Nepalis working in Malaysia so that they could call back home at affordable prices. Currently, a team is designing that scheme. I also want to give more benefit to voice users. We recently introduced a scheme called ‘Night Voice Pack’, which allows Ncell customers to talk for an hour at night for seven rupees, excluding taxes. I want to introduce similar package for day time too, so people could talk for longer time.

Lastly, when are you planning to change the logo?

Yes, we’ll be doing that soon. But I don’t want to disclose anything on it now. However, we’ll continue to use the name, Ncell, because customers love it.