Finance Ministry fails to report to PAC

May 02, 2017

The Kathmandu Post, 2nd May 2017, Post Report, Kathmandu

The Finance Ministry has failed to submit details about the progress made in determining the amount of capital gains tax on the Ncell buyout deal to the parliamentary Public Accounts Committee (PAC) on time.

Last Thursday, the House panel had directed the ministry to submit details on the progress within five days.

“We haven’t received any correspondence from the ministry regarding the matter,” said PAC Secretary Surendra Aryal. “As Monday is a public holiday, we will wait till Tuesday and then decide what to do.”

PAC had issued the directive after the government failed to clarify its position and determine the tax amount based on its previous directive. Earlier, the committee had asked the government to determine the tax amount by mid-April.

In the biggest corporate buyout deal in Nepal, Swedish telecom giant Telia sold its stake in Ncell to Malaysian company Axiata for $1.03 billion in 2015. The government had clearly stated that 25 percent of the profit made from the sale of Ncell had to be deposited as capital gains tax.

In principle, capital gains tax should be paid by the seller of the asset who earns a profit from the deal. Since Telia had sold its stake in Ncell to Axiata, the European company should shoulder the tax burden. But the company has already exited Nepal. Ncell, on the other hand, has been saying it is not obliged to pay tax on behalf of Telia because it did not benefit from the deal.

Based on PAC’s directive to the government to determine the tax amount on the Ncell deal, the Large Taxpayers Office (LTO) under the Inland Revenue Department (IRD) had formed a three-member expert team to advise it on Ncell’s ownership transfer case.

Likewise, during a recent PAC meeting, IRD Director General Chudamani Sharma had sought an additional one month to conduct investigations. However, the House committee did not officially grant a deadline extension.

“The LTO is doing a tax assessment and it is in the final stage. Many things need to be considered before coming to a conclusion, which is why it is taking time,” Finance Secretary Shanta Raj Subedi told the Post. He added that the ministry had been sending details about the tax assessment to Parliament every fortnight.

“I am not sure about the development this time. However, they must be making preparations to send the details to PAC on Tuesday instead of Monday,” Subedi said, adding that the issue was being treated as top priority.

The incompetence of tax authorities in collecting tax on the Ncell buyout deal was also highlighted by the Office of the Auditor General (OAG). In its annual report, the OAG asked the government to clarify its position on the case at the earliest.

The autonomous body that conducts financial audits of government agencies has singled out the Finance Ministry for not collecting the tax amount on time and has booked arrears amounting to Rs32 billion in the name of the ministry.