NCell and Capital Gains Tax – Governance in Nepal


NCell and Capital Gains Tax

The controversial debate over capital gains tax related to NCell’s transfer of ownership from TeliaSonera to Axiata came to a closure this week with a Supreme Court verdict. A full bench consisting of five justices said NCell and Axiata companies are liable to pay the capital gains tax.[1] The Supreme Court was responding to a Public Interest Litigation filed by a group of civil society members including the former Auditor General, Sukhdev Bhattarai Khatri and a former secretary, Dwarika Nath Dhungel. The NCell case became controversial[2] when senior government officials and the Office of the Auditor General, alleged that the government bodies and owners of NCell had engaged in dereliction of duties, undervaluation of shares, illicit financial flows and tax evasion schemes[3] causing a loss of almost Rs 115 billion to the state.[4]

In January 4, 2018, LTO published a notice directing Telia Company—the previous owner of Ncell—to deposit capital gains tax of Rs 65.4 billion, including fines and interests, imposed on the sale of the telecom company to Axiata Group.[5] The Court’s verdict, on the surface, has raised questions about whether the seller, TeliaSonera, should have been liable for the CGT. However, there were complicated arrangements in the transfer of ownership, including a clause whereby TeliaSonera, while divesting, had transferred legal liabilities for tax to Axiata. The verdict has also exposed vulnerabilities and corruption within the judicial system, as this has reversed earlier orders by the court.[6] Telia Sonera itself continues to maintain that it did not engage in corruption and has no tax liabilities in Nepal.[7]

Govinda K.C.’s campaign for amendment of the Medical Education Bill

Both the houses of the federal parliament bulldozed National Medical Education Bill despite strong reservations by the opposition Nepali Congress and Dr Govinda K.C., who was putting pressure on the parliament through a fast-undo-death.[8] Though the bill was a result of relentless struggle by Dr K.C.—this was his sixteenth fast—there were still some issues related to content of the preface and loopholes for a couple of institutions run by people with direct links to Nepal Communist Party regarding setting up of medical colleges inside Kathmandu Valley and medical colleges who’d already received permission to operate outside Kathmandu. Dr. K.C.’s demands to limit affiliation to five medical institutions by each university and none inside Kathmandu Valley for the next 10 years became a prestige issue for Nepal Communist Party. When the upper house also passed the bill, Dr. K.C. relented and ended his fast[9] claiming the government was engaged in policy corruption.[10] A few days earlier, he’d been airlifted to Kathmandu dramatically in the middle of the night because of his worsening health condition.[11]

Nepali Congress launched nationwide protest rallies on February 4 following the ratification of the bill. The party raised issues related to corruption and “authoritarian” style of governance.[12]

Government tightening security and constraining space for the civil society

The Oli government continued to push for rigorous security and regulatory mechanisms in the past few weeks constraining the space for provincial governments and the civil society. The parliament is deliberating on bills introduced by the government. One bill related to the management and coordination of police at the Centre and provinces, limits the role of the provincial governments and gives authority to the Chief District Officer to coordinate the mobilization of the Nepal Police operating at the provincial levels.[13] The Peace and Security Bill 2019 gives authority to the CDO to censor peaceful protests or gatherings. Such protests or gathering require prior permission of the CDO.[14] The civil society is also expressing concern about Bill on Management of Advertisement Regulation, 2018, which they fear would be used to limit freedom of expression,[15] facilitate censorship, and distort media operations.[16] Republica went to the extent of proclaiming that the law poses danger of economic blockade on media.[17]

Other challenges to good governance

Several other incidents this week exposed state’s vulnerabilities to corruption and irregularities. The CIAA, meanwhile, appeared to be actively pursuing cases of corruption. It filed a case at the Supreme Court against 14 persons including a former minister and chair of Social Welfare Council[18] as well as a Nepal Electricity Authority official.[19]

The national vigilance center (NVC), meanwhile, recommended the government to bring corruption in the private sector under the purview of law.[20] Reports said the NVC had sent personal details of 19, 134 civil servants who had failed to submit property details to CIAA for legal action in fiscal year 2017-2018.[21]

After months of delay over questions of corruption, Nepal Telecom signed agreements worth Rs 19 billion with two Chinese companies to expand 4G LTE service throughout Nepal. The agreement was signed by Dilli Ram Adhikari, who recently became managing director of Nepal Telecom and has close connections to Nepal Communist Party.[22]

The Kathmandu Post reported that a tussle has started between the Ministry of Tourism and Civil Aviation Authority of Nepal (CAAN) over the operational modalities of Gautam Buddha Airport in Bhairahawa.[23]

Although domestic air passenger numbers doubled to 7,800 daily[24], Nepal Airlines (NAC) has lost passenger shares by almost 17 percent. Nepal Airlines also faced embarrassment when eight aircraft, including one used for international flights, had to be grounded because pilots were on leave.[25]  According to Kantipur, all six Chinese aircraft were grounded because of mismanagement bringing the total number of grounded aircraft to 10.[26]

As Nepal seeks to procure railway carriages and engines for Jayanagar-Janakpur line with the assistance of the Indian government, discrepancy has emerged over the cost. The unit cost forwarded by Nepalis appears to have been escalated when compared to the unit cost forwarded by India.[27]

Government appears uncertain about how to move the Melamchi drinking water project forward after the government cancelled the Italian contractors work on December 20. Police had arrested the staff of the Italian builder, Cooperativa Muratori e Cementesti di Ravenna (CMC) when they tried to leave Nepal on December 16. The staff were later released.[28]

  3. See OAG (2017, p. 14-18) for details.

Photo: Sushma Bhatta

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