This article first appeared in The Edge Financial Daily on April 23, 2019

KUALA LUMPUR: Axiata Group Bhd’s 80%-owned unit, Ncell Private Ltd, is challenging the decision by the Nepali tax authority to seek 39.06 billion Nepalese rupees (RM1.45 billion) as capital gains tax (CGT) from the company.

Axiata said Ncell has filed a writ petition to Nepal’s Supreme Court (SC) against the country’s Large Taxpayer Office (LTPO), Inland Revenue Department and Ministry of Finance. The application was accepted by the court yesterday.

The LTPO had sought the payment via a letter dated April 16, as a follow-up to the full written order of the SC on April 9. That order relates to the court’s oral order on Feb 6 on a public interest litigation filed by a group of Nepali individuals.

“Ncell’s writ to the SC asserts that the LTPO has not complied with the procedure as stated in the country’s Income Tax Act for making a tax assessment and has instead used the SC’s order dated April 9 to substitute the amount that the LTPO had previously assessed for TeliaSonera Norway Nepal Holdings AS and levied it on Ncell,” said Axiata in a statement.

Axiata, through its wholly-owned subsidiary, Axiata Investments (UK) Ltd, had acquired Reynolds Holdings Ltd (the immediate holding company of Ncell) from TeliaSonera.

The LTPO was originally supposed to collect the CGT from TeliaSonera, but since the latter has no more presence after disposing of Ncell, the SC has now ruled that the responsibility to pay tax lies with Ncell and Axiata.

The LTPO, in its letter to Ncell, said the assessment order initially issued to TeliaSonera has been transferred to Ncell and further that the balance amount of the CGT arising from the acquisition is 39.06 billion rupees.

The money was to have been deposited with the LTPO by yesterday, but Ncell is understood to have not paid pending the outcome of its court action.

In a filing with Bursa Malaysia yesterday, Axiata said Ncell had been duly advised by its professional advisers that there are supportable grounds to challenge the legality of the LTPO tax claim.

Besides the claim that the LTPO’s decision in transferring the TeliaSonera assessment unto Ncell did not follow the correct procedure, Axiata also noted that the LTPO is obligated to undertake a tax assessment on Ncell and not merely a tax collection.

Axiata also pointed out that the LTPO had failed to provide Ncell the opportunity to make any submission or representation in relation to the imposed tax liability.

The LTPO, it added, also failed to provide Ncell with the option to file or submit an application for administrative review over the tax collection.

Therefore, Axiata said Ncell’s application is seeking an annulment of the LTPO CGT collection as well as all decisions, communications and proceedings in relation to the matter against Ncell.

After completing the acquisition of Ncell, Axiata had made two advance deposits of about 13.6 billion rupees in aggregate to the LTPO, which in its letter dated June 4, 2017 “conclusively certified and acknowledged” that Ncell had fully complied with the direction of depositing advance tax pursuant to the Income Tax Act.

Axiata also pointed out that the LTPO has subsequently certified that Ncell had been fully cleared of responsibilities of CGT arising under the Act.

However, a group of Nepali individuals then filed two public interest litigation with the SC over the acquisition, claiming that the onus of payment of CGT is on Ncell, Reynolds and Axiata UK.

The court went on to rule that the responsibility to pay tax lies with Ncell and Axiata, and ordered the LTPO to conduct an assessment to determine the outstanding CGT to be paid in relation to the Ncell acquisition.

Axiata’s share price fell 16 sen or 3.96% to RM3.88 yesterday, giving the group a market capitalisation of RM35.22 billion.