Nepal | April 25, 2019

EDITORIAL: Collect due tax

The Himalayan Times

The verdict has put to rest the controversy that has dragged on for years over who should foot the tax bill – Axiata or TeliaSonera

The grand full bench of the Supreme Court on Wednesday directed Ncell and its parent company Axiata to pay the capital gains tax (CGT) on the Ncell buyout, paving the way for the Large Taxpayers’ Office to collect the due duly owed to the government. The purchase of Ncell’s controlling shares by Malaysia-based Axiata from Norway-based TeliaSonera is subject to a capital gains tax of Rs 61 billion. If late fees are taken into account, the figure could go up to Rs 66 billion. This will be known once the Supreme Court gives its full text of the verdict, which cannot be appealed for a further review. CGT is a fee imposed by the government on the profit made from selling certain types of assets and is realised from the sale of stocks, bonds and property. It is calculated by deducting the original cost of the asset from the total sale price. The verdict has put to rest the controversy that has dragged on for years over who should foot the tax bill – Axiata or TeliaSonera.

The verdict is sure to help the state coffers to swell, but then it also raises quite a few questions. In principle, the capital gains tax is paid by the seller of an asset, not the buyer. However, TeliaSonera has already folded up. Hence, as per the Income Tax Act, Ncell is now responsible for its tax liabilities. Axiata, which bought over the shares of TeliaSonera, should have ascertained whether or not the latter had permission from Nepal authorities to sell Ncell services and whether Axiata could control Ncell. Also how could two foreign companies be conducting a deal worth more than a billion dollars in a far off land to control assets in Nepal without so much as informing the Nepali authorities? And who approved the transfer of the shares?

The CGT should have come within the Nepali tax net without much effort, but it has become a protracted messy business. The matter should have been sorted out at the time when the shares were being sold and bought outside the country. It is unfortunate that the authorities failed to act even when the media was abuzz with news about the deal. How could the authorities have let TeliaSonera off the hook so easily? The company could not have dared to dodge the taxes, lawfully owed to the government unless there was a nefarious nexus between it and the officials and other influential people here. Hence, a thorough investigation is required to see who were the intermediaries that helped the company to evade such a huge amount of tax. Regardless of who and how powerful they are – political figures, tax officials, people in court – they should all be brought to book. There are fears that the verdict, coming as it does on the eve of the second Investment Summit in March, might deter investors. This is true, investors are people without borders and will head for a country where there is money to be made. There are a lot of ambiguities and hurdles in our foreign investment policy and laws. In trying to be an investor-friendly country, we must try to create an environment where they can work without any hassles and remit their profits after duly paying their taxes. It should, however, not be Nepal’s intention to appease sham investors trying to profit immensely from loopholes in our laws.

Lowest energy leakage

State-owned Nepal Electricity Authority (NEA) deserves applause for saving more than Rs 7 billion in the first five months of the fiscal by controlling electricity leakage all over the country. The NEA has beaten its own set target of reducing the leakage to 18.5 per cent from the current 20.45 per cent. The state power utility has reduced the leakage to 15.45 per cent, which is the lowest in its 33-year-old history. Around 4.5 per cent of the NEA’s total energy goes to waste due to a technical loss in the transmission lines while another 10.95 per cent is wasted thanks to leakage in the distribution system. Bhaktapur and Hetauda distribution centres are the ones which see the highest power theft.

Besides the technical leakage, theft of electricity, which hovers around 10 per cent, is one of the major problems the NEA is trying its best to plug. Until three years ago, the NEA was facing an annual loss of around Rs 9 billion. Now, it has made a profit from the sale of energy. It can churn more money provided that it upgrades its distribution system. Reducing the leakage of electricity will mean saving more money for new power plants. The measures will also help the NEA keep its financial condition healthy.


A version of this article appears in print on February 08, 2019 of The Himalayan Times.

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