KATHMANDU: The Prime Minister Pushpa Kamal Dahal-led government has made a mysterious amendment to Section 57 of the Income Tax Act, raising suspicions among financial experts that it is aimed at exempting the telecommunications company Ncell from billions in taxes.
As part of the Economic Bill, 2081, the government has amended the Income Tax Act, 2058.
The Economic Bill, which passed through the House of Representatives on Sunday, added a restrictive clause to Section 57 under Subsection 6 of Section 36.
Section 57 stipulates that if ownership of an entity changes by 50 percent or more within a three-year period, the entity is deemed to have disposed of its assets or liabilities.
This means that when an individual acquires more than 50% ownership in a company, the new investor also inherits the company’s liabilities.
However, the recent amendment introduces a restrictive phrase, indicating that this provision will not apply if the capital is increased by adding new shareholders while maintaining the existing number of shares and the capital of the current shareholders.
The revised provision states: “However, the provision of this sub-section shall not be applicable in the case that new shareholders and partners are added, and the capital is increased while the number of shares and capital of the former shareholders and partners remain unchanged.”
Experts in economic affairs believe this amendment is an attempt to relieve Ncell of longstanding liabilities to the state.
Former Finance Minister and Nepali Congress leader Dr. Prakash Sharan Mahat criticized the government’s amendment in Parliament, calling it a serious issue.
He asserted that the change to Section 57 was deliberate, stating, “This provision allows ownership changes through capital increases without any share transactions. It is clear that this will specifically benefit the company in question.”
Dr. Mahat’s comments highlight widespread concern about the implications of this amendment for transparency and accountability in the financial sector.
Suspicion of trying to protect Ncell
Ncell is a foreign investment company with a paid-up capital of 1 billion Nepalese rupees.
Previously, 80 percent of its shares were owned by the Malaysian company Axiata, but this stake was sold to the British company SpectraLite UK Limited, owned by non-resident Nepali Satishlal Acharya.
The remaining 20 percent of Ncell’s shares are held by Sunivera Capital Ventures.
According to Section 25 of the Telecommunications Act (2053), Ncell’s license is valid for 25 years, extending until August 2086.
Given that 50 percent of the company is foreign-owned, Section 33 of the Act stipulates that it will automatically come under the ownership of the Government of Nepal after August 2086.
However, if the bill passed by the House of Representatives is implemented, the addition of new shareholders and an increase in paid-up capital could exempt the company from tax liabilities under Section 57 of the Income Tax Act, according to economic experts.
A report submitted to the government by a committee led by former Auditor General Tankamani Sharma highlighted that Ncell Aziata has paid taxes and non-tax revenues.
Opposition leaders argue that the recent amendment to Section 57 of the Income Tax Act allows new shareholders in Ncell to avoid inheriting the company’s previous obligations to the state.
Dr. Mahat stated that under the current provisions, the government does not impose taxes during share transactions.
Meanwhile, Finance Minister Barshaman Pun, addressing questions in Parliament, defended this arrangement, stating it is designed to encourage startup companies.
He explained that Section 57 has been modified to foster investment, responding to demands from private sector umbrella organizations.
“This sub-section will not apply if the shareholders, partners, and capital remain unchanged, but only when new shareholders are added and capital is increased,” Pun clarified in Parliament.
Despite Minister Pun’s assurances, tax expert Baburam Aryal asserted that a company’s previous tax liabilities remain with the company.
Changing its structure to evade these liabilities cannot absolve the directors of responsibility.
Aryal emphasized, “Tax liability is inherent to the company; who comes and goes is secondary. If a company fails to meet its prior tax obligations, altering its structure to dilute responsibility is unacceptable. This principle, known as lifting the corporate veil, ensures accountability among company partners.”
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