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The tax in question

Monday, May 16th, 2016
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From the Nepali Press

Himal Khabarpatrika, 15-21 May

An interview with Simon Perkins, Managing Director of Ncell Nepal on the recent capital gains tax issue.

ncell

Himal Khabarpatrika: What do you have to say about the Ncell’s recent capital gains tax issue?

Simon Perkins: Ncell is the most loved and largest brand in Nepal. The role it played in making mobile services accessible to all has touched people’s heart and people are emotionally connected with it. Also, ownership transfer of Ncell marked the biggest ever corporate transaction in Nepal. So, it was natural that the deal drew everyone’s attention and was widely discussed in all platforms. While we were in a continuous dialogue with the Large Tax Payers’ Office (LTPO) over its instructions on capital gains tax (CGT), some misconceptions were created due to dissemination of one-sided news and views, which were incorrect. Such actions created confusion among the people. But I believe as facts start to surface in the public domain, all misconceptions will be cleared.

Do you take it as a weakness of the company to have let this issue be blown out of proportion?

The transaction between Axiata and TeliaSonera (now known as Telia Company) involved the sale and purchase of 100% of Reynold Holdings shares. The transaction does not involve Ncell shares. The only transaction that involved Ncell shares was the sale of the 20% of Ncell by the previous local shareholder, Niraj, to Sunivera, for which the 15% advance tax was duly collected and deposited by Ncell. CGT, if applicable, is the full responsibility of the Seller. Since Ncell was not a party to the transaction involving the sale of Reynold Holdings shares, it does not have any information relating to the proceeds and acquisition and investment cost of TeliaSonera.

However, Ncell in all of its correspondences, on this matter has stated its intention to fully work with the LTPO to find an amicable solution with the Seller, TeliaSonera. Our commitment is proven as despite not being a party to the transaction, we have agreed to perform the calculation and deposit the amount based on our calculation which is based on publicly available information that we have managed to obtain through our own effort which stated the investment cost of TeliaSonera.

Please clarify the latest situation after the payment of NPR 9.96 billion?

Ncell has followed the directive of the LTPO to calculate and deposit 15% of the gains based on information sourced by Ncell through public domain. We fully stand by our calculation and the source of the information which the calculation was based on, and we have fulfilled the requirement as directed by the LTPO.

Ncell paid NPR9.96 billion at a rate of 15 percent. But 15 percent of NPR 136.40 is still NPR 20.46 billion. Why is there such huge discrepancy?

As stated above, Ncell is not a party involved in the purchase of Reynold shares. Neither do we have any information related to the transaction nor do we have any information in relation to the acquisition or investment cost of TeliaSonera when it first acquired Ncell.

CGT, if any, is the full responsibility of the Seller. Hence, according to calculations, if there is any it should come from the Seller.

Nevertheless, in the true spirit of being a responsible corporate entity, Ncell has agreed to work with the LTPO and agreed to perform the calculation on behalf of the Seller. This is based on information sourced from public domain: the Norwegian Business Registrar Office, which is equivalent to the Company Registrar’s Office of Nepal. We fully stand by our calculation and source of information and have, accordingly, made the deposit as directed by LTPO in its letters to Ncell.

It is also being said that although 80 percent share transactions looks like a big number, the company should actually be receiving less capital gains because of huge expenditures. Is that true?

That is incorrect. CGT, if any, is the tax charged on the profit derived by the seller when the shares are sold to the buyer. It has got nothing to do with the expenses of the company whose shares are being sold, in this case Reynold Holdings.

As stated above, Ncell was not involved in the transaction involving the sale of Reynold Holdings and neither was Ncell shares being transacted for the sale involving Reynold holdings.

In any case we are proud to reiterate that Ncell is the highest taxpayer in Nepal and felicitated for the same for the fiscal years 2069-70 (2012-13) and 2070-71 (2013-14), and aims to continue to serve the people of Nepal. We have on all occasions exercised the highest standards of governance and compliance pertaining to the fulfilment of tax obligations.

Suppose Ncell is of the view that huge amounts of expenditures translates to paying less gains then more than NPR 57 billion profit still remains idle. In such situation, the capital gains should not be this less, isn’t it? 

Firstly, Ncell does not state any opinion on the CGT, if any, involving the sale of Reynold shares by TeliaSonera as it is not a party to the transaction.

Secondly, any profit made by Ncell resulting from its business operations is duly taxable under the normal income tax provision of Nepal. As stated above Ncell is the highest taxpayer in Nepal and felicitated for the same for the fiscal years 2069-70 (2012-13) and 2070-71 (2013-14)

It looked like Ncell was hesitating to pay the tax initally, why was it so? And later why did it opt to pay the tax itself when the letter sent by the company to LTPO indicated that TeliaSonera is responsible for paying the capital gains tax?  

Firstly, it is important to note that TeliaSonera sold 100% of its ownership in Reynold Holdings. Reynold owns 80% of Ncell, and Ncell was never a party to the transaction.

Accordingly and as reiterated above, since Ncell was never a party to the transaction involving the sale of Reynold shares and neither has it made or received any payment in relation to the transaction, it does not have in its possession any information relating to the transaction neither does it have any information relating to the acquisition or investment cost of TeliaSonera in Reynold Holdings.

The extension request was mainly to work with the LTPO to try and obtain the relevant information from TeliaSonera to perform the calculation as directed by the LTPO.

However, since the extension was not accorded by the LTPO, Ncell is still closely working with the LTPO and was able to perform the calculation based on information obtained from public domain as explained above, and made the deposit payment as directed by LTPO within the stipulated timeframe.

Who is paying the tax, TeliaSonera or Axiata?

We are not able to comment on the position of TeliaSonera in responding to the letters from the LTPO in relation to the CGT. As per above, Ncell had performed the calculation and made the deposit payment as directed by LTPO in its letters to Ncell.

As a reputable company why didn’t Ncell declare its taxes?

As mentioned above, the only transaction involving the sale of Ncell shares was for the 20% ownership of Ncell, between Niraj as the seller, and Sunivera as the Buyer. Under this transaction, Ncell has duly complied with the obligation to collect and deposit the 15% gain pursuant to the tax provision of Nepal within the permissible timeframe

Is the whole controversy only about Ncell not paying the applicable tax or is there any other reason behind it?

We wish to reiterate that Ncell is not a party to the transaction involving the sale of Reynold shares and CGT, if any, is the full responsibility and liability of the Seller

Ncell had worked with the LTPO and has managed to perform the calculation and made the deposit payment as directed by the LTPO.

Whilst we strongly believe that the campaign against Ncell was not fair given that it is not a party to the transaction and neither has it received or made any payment in relation to the transaction involving the sale of Reynold shares, we would like to just put this unfortunate episode behind us and we are ready to move forward to continue providing the best affordable services to the citizen of  Nepal, which is what we do best.

What was the purpose of your meeting with Chief of the Commission for the Investigation of Abuse of Authority (CIAA)?

The meeting is unrelated to any of the events and it is just a courtesy visit to the regulatory authorities of Nepal.

We heard that a few Nepali individuals and groups had demanded a stake in Ncell when Axiata was taking over from TeliaSonera.

Again, the sale by TeliaSonera involve the sale of Reynold shares.

The events you described above was related to the transaction involving the sale of 20% of Ncell between Niraj and Sunivera Capital.

We have heard about the interests from other local individuals and entities for the 20% shares and it is common to have such interest given Ncell’s superior performance todate.

What is the purpose behind holding Ncell through shell company instead of buying directly?

All of our transaction has been structured in accordance to both local and international laws.

It is said that, to make it easier to exit Axiata set up a company in UK to buy Ncell instead of buying it directly. Is this true?

All of our transaction has been structured in accordance to both local and international laws.

What do you have to say about the No Tax No Ncell campaign on social media and the drive against Ncell by the cadres of political parties?

As per above, we believe this campaign is unfair as it is directed to Ncell, which was never a party to the transaction involving the sale of Reynold shares and neither has it received or made any payments in relation to the transaction.

However we would like to just put this unfortunate episode behind us and we are ready to move forward to continue providing the best affordable services to the citizen of  Nepal, which is what we do best.

What potential did Axiata see in the Nepali telecom market to buy Ncell from TeliaSonera?

Axiata’s focus has always been within South Asia and South East Asia market.

From strategic footprint perspective, Nepal completes our coverage of South Asia market, which include Dialog in Sri Lanka, Robi in Bangladesh, and our associate company, Idea, in India.

With a mobile penetration of unique subscribers of 51%, the country has experienced a mobile subscriber growth at an average of 18% from 2012-2014.

Nepal’s economy has grown by a compound annual growth rate (CAGR) of 4.2% over the past six years with a young population where an estimated 68% of its total 28 million is below the age of 35. The market is young and vibrant, and there is so much Ncell as a company can to do in driving growth. This is where Axiata believes it can play a strong rolewith this experience and expertise.

As a company, Ncell is the number one operator in Nepal with a stronghold of close to 57.5% revenue market share and 48.8% subscriber market share. It is a strong brand in Nepal, providing best-in-class services and customer care.

TeliaSonera’s logo is still used with Ncell, when are you planning to rebrand?

We will do it soon.

What new services can Nepali consumers expect from Ncell now that Axiata has taken over?

We will continue providing high quality service to our customers through aggressive investment on telecom infrastructures and services in areas that matter the most in Nepal. We have already working on expanding 3G services to serve and create opportunities for the underserved rural and remote communities. To achieve this, we have very recently announced ambitious investment plan, under which we aim to invest around NPR 12 billion for remaining period of 2016.

We aim to work closely with the regulator and the government to fulfil national goals to benefit Nepalese through the use of technology that can bring immediate and impactful results in education, health and mobile financial services, among others.

We also have attractive products and services in the offing for our customers; we will continue to gradually introducing it in the market.

Can you please give a brief introduction of Axiata?

Axiata is one the largest Asian telecommunication companies, and today operates in ten countries, servicing approximately 290 million subscribers. With a diverse portfolio in mobile network operations, communications infrastructure services and digital services, the Group pieces together the best in connectivity, technology and people in its vision of Advancing Asia.

Axiata has controlling stakes in market leading mobile operators in South East Asia and South Asia. Axiata Group of companies operate under the brand name of ‘Celcom’ in Malaysia, ‘XL’ in Indonesia, ‘Dialog’ in Sri Lanka, ‘Robi’ in Bangladesh, ‘Smart’ in Cambodia and ‘Ncell’ in Nepal. Further to this, the Group also holds strategic interests in ‘Idea’ in India and ‘M1’ in Singapore.

As a committed and long-term investor, the Group provides employment to 25,000 people within its operations. In line with its sustainability goals, the Group actively supports and drives young talent development; disaster response and recovery; as well as green initiatives.

 

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One Response to “The tax in question”

  1. Ravi Raj Kaur on Says:

    Actually with the economy down we get the same thing, tv news makes basically publicity for some stores.
    News should be about democracy. Or the lack of it not about business of some huge company, unless critical. Jobs? For us?

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