Auditor general’s office questions Ncell deal

April 13, 2017

The Kathmandu Post, Bibek Subedi,13th April 2017, Kathmandu

The Office of the Auditor General (OAG) has become the first state agency to flag the taxman’s incompetency in collecting tax amount due from the sale of Ncell, saying that concerned government authorities failed to determine the capital gains tax worth billions of rupees on the largest corporate buyout deal in the country’s history. 

The autonomous body that conducts financial audit of government agencies has particularly blamed the Ministry of Finance for not collecting the tax amount on time and has booked an arrears of Rs32 billion in the name of the ministry. 

Telia, a Sweden-based telecom company, sold 60.4 percent stake in Ncell to Axiata, the Malaysia-based telecom giant. Axiata also acquired another 19.6 percent stake in Ncell from SEA Telecom Investments BV, a company owned by Kazakhstan-based Visor. Axiata acquired these stakes at Rs144 billion.

Ever since the deal took place, the government has been saying tax would be levied on the transaction, but it has not mentioned the amount that needs to be collected. Following pressure from the government, Ncell has so far deposited Rs 9.97 billion as 15 percent withholding tax, or tax deductible at source for the capital gains. The payment of this tax amount means the seller earned Rs66.46 billion by disposing its ownership in the telecom company. This tax amount was calculated by Ncell on its own. 

“Based on this calculation, the tax authorities need to collect additional Rs6.64 billion in tax amount,” the OAG has said in its 54th audit report unveiled on Wednesday, a copy of which was handed over to President Bidya Devi Bhandari earlier in the day.

However, tax authorities, including the Large Taxpayers’ Office (LTO), are clueless about the actual amount that needs to be collected in the form of capital gains tax. 

“This shows how weak our tax administration has become,” Acting Auditor General Sukdev Bhattarai Khatri said. “The whole episode smacks of LTO’s apathy in levying capital gains tax on the beneficiary (Telia). The LTO hasn’t even bothered to get a copy of sales and purchases agreement of that deal.” As per the OAG report, Telia had acquired 60.4 percent stake in Ncell for Rs1.13 billion in October 2008. But the company had inflated the purchase price to Rs78.31 billion at the time of selling the company in 2016. “The price appears to have been inflated to evade capital gains tax,” says the report.

Also, the OAG is not convinced that Telia and SEA Telecom sold 80 percent ownership in Ncell to Axiata at Rs144 billion. 

“The value of the company should be much higher,” the report says, pointing out that factors such as market share in Nepal’s telecom sector, value of assets created through investment and retained earnings, goodwill and value of operating licence extended by the government have not been taken into account. It has recommended that the LTO review the matter and determine the outstanding capital gains tax accordingly.The report further says the seller of another 20 percent Ncell stake has also tried to evade capital gains tax by undervaluing the price of shares. The 20 percent stake in Ncell was sold to a Nepali citizen at Rs11.57 billion. “Considering the valuation of Rs144 billion for 80 percent stake, the price at which 20 percent of the shares were sold seems undervalued,” adds the report.