The group said yesterday it had made an advance deposit of 13.6 billion Nepalese rupees (RM563.63mil) to the Nepalese tax department, also known as the Large Taxpayers Office (LTPO).
This deposit confirms that the company has concluded tax matters in relation to the indirect sale by Axiata’s subsidiary Ncell Pvt Ltd’s previous owner TeliaSonera Norway Nepal Holding AS, Axiata said in a statement yesterday.
“Based on the total advance deposit placement by Ncell to date, the LTPO in its confirmation letter to Ncell today conclusively certified and acknowledged that Ncell has fully complied with the direction of depositing an advance tax pursuant to Section 95A of the Nepali Income Tax Act, 2058 (2002),” Axiata said.
“The company is now fully cleared in relation to the transaction which attracted capital gains tax (CGT) under the Income Tax Act, 2058 (2002),” it added.
The group said that despite Ncell not being a party to the transaction and it neither having received nor made any payments in relation to the transaction, the deposit and closure of this matter was part of its commitment to continue serving Nepal.
“Ncell has consistently complied with the laws of the country, and has on all occasions exercised the highest standards of governance and compliance pertaining to the fulfilment of its tax obligations,” Ncell’s managing director Simon Perkins said in the statement.
“We thank the government of Nepal and the LTPO for their support in coming up with a resolution and concluding this matter with Ncell. With this conclusion, Ncell can now focus on proceeding with our investment and service expansion plans, in particular, with regard to the 4G rollout which will leapfrog Nepal’s digital economy, without any further obstacles,” Perkins added.
Ncell also said it would continue to invest aggressively in Nepal’s telecommunications infrastructure and ensure the delivery of high-quality services to the people of Nepal.
To date, the group remains one of the largest taxpayers in Nepal with over 160 billion Nepalese rupees paid over the last 13 years.
In the latest StarBizWeek edition, it was reported that Axiata was caught in a bind with regard to the CGT issue over the purchase of an 80% stake in Nepal’s Ncell.
The article quoted AmInvestment Bank as saying in a note that an additional one-off regulatory cost and potential operational disruptions may arise for Ncell.
Last year, Axiata concluded the purchase of the 80% stake in Ncell by buying a 100% stake in Reynolds Holdings Ltd from TeliaSonera UTA Holdings BV and SEA Telecom Investments BV for US$1.37bil.
The Nepali government had then clearly stated that 25% of the profit made from the sale of Ncell should be deposited as the CGT, but it did not specify an exact amount.
Essentially, the onus to pay the CGT falls on the seller, which in this case is TeliaSonera.
“The Nepal government has been split on whether the tax should be paid by the buyer or the seller and may require Ncell to pay on behalf of the international companies,” said Hong Leong Investment Bank Research in an earlier note.
Axiata subsequently deposited US$94mil, which is about 15% of the CGT, with the LTPO with the amount being based on previous transactions.
When contacted, analysts said it was not fair for Axiata to be bearing this amount, noting that this should rightfully be borne by the vendor of the transaction.
An analyst with a local investment bank said that this payment was just a deposit and is expected to be parked in its balance sheet, similar to what was done with the initial payment.
“This wouldn’t affect its earnings in the immediate future. It will be deducted from its cash pile. As of March 31, Ncell had cash totalling 41 billion Nepalese rupees and taking out 13 billion would not impact much on working capital,” he said.
“I think the question now would be how the Nepalese government treats this deposit payment. From recent reactions by the Nepalese Public Accounts Committee, they are unlikely to return this deposit,” he added.
He further said that if this deposit is not returned eventually, then Ncell would have to write it off, and this would then impact its bottomline in the distant future.
“It will depend on how they want to treat this,” the analyst said. He noted that essentially, if this money is not returned to Ncell, it would be added to the acquisition cost.