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A simple guide to “Ncell tax scandal” for dummies

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Ncell and Its ownership

This article is created to give a simplest perspective on what’s the fuss and buzz on Ncell issue, for general public who are just curious to understand the issue for general knowledge purpose only.



First thing to understand

A foreign company can only invest in Nepal with local resident holding at least 20% of shares.  So there comes the company Raynold Holdings to invest in Ncell with 80% shares and 20% shares by local resident, Niraj Govinda Shrestha

Second thing to understand

There is a company TellaSonera Asia Holdings which owns 100% shares on Raynold Holdings.  That makes TellaSonera indirectly owning 80% shares on Ncell.

Before moving to next thing, let’s recap

Raynold Holdings, a foreign company, owned completely by another foreign company, had invested in Ncell taking 80% shares through FDI.

They made loads of money in Nepal.  Ncell was just 10 cr company and with its superb business success and growth, value went to multi crores.

WHAT HAPPENS NEXT

AXIATA, a UK-based company wants to invest in Ncell not by coming to Nepal directly through FDI but by buying Raynold Holdings from TeliaSonera.  AXIATA is based outside Nepal, and so the TeliaSonera which owns Raynold Holdings.

TeliaSonera then comes up official press release stating that “TeliaSonera has agreed to sell its 60.4 percent ownership in the Nepalese operator Ncell to Axiata, one of Asia’s largest telecommunication groups, for USD 1,030 million on a cash and debt free basis. At the same time, TeliaSonera will dissolve its economic interests in the 20 percent local ownership and receives approximately USD 48 million.

 

AXIATA gives the money to TeliaSonera and owns the company Raynold Holdings which is 80% shareholder of Ncell.

 SO WHAT IS THE ISSUE?

TeliaSonera made billions of dollars and didn’t pay a penny to government on capital gain tax.  AND THAT WAS THE ISSUE!!

Why?? Because, technically speaking TeliaSonera made billions simply by selling Raynold Holdings outside Nepal.  Just that by buying Raynold Holdings, all its assets  automatically went to the new buyer, which is AXIATA.  And one of the assets of Raynold Holdings is 80% shares on Ncell.   Even after the deal, the substantial holding of NCell would continue to remain with Reynolds Holding and so legally there would be no change in shareholding of NCell in Nepal. This is regarded as an indirect transfer of underlying ownership.

SO, IT WAS A WELL PLAYED GAME, HUH?

Very well played! In the eye of law, FDI Company Raynold Holdings is still the 80% owner of Ncell, which happened to have changed its parent company from TeliaSonera to Axiata — Raynold Holdings nor Ncell made any capital gain to tax.

And?

Well! TeliaSonera could not be taxed since legally speaking there was no buy and sell within the country, so Supreme Court on Wednesday issued a mandamus order directing the government to recover the due capital gains tax from Ncell and Axiata.

Will Ncell and Axiata pay the due capital gains which, principally speaking, is supposed to be paid by the party who actually had made the gain, is yet to see.

This interesting game of loophole is what made Ncell a curious case.





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4 Comments

4 Comments

  1. Reader

    February 8, 2019 at 2:22 am

    Good and easy to follow read. Draws a very clear picture of the issue. Keep more of the similar articles coming as most people don’t like to go through or understand a lengthy article, full of jargons, thereby depriving themselves of the very important knowledge about public matters.

  2. Suman Pandey

    February 8, 2019 at 4:41 am

    Telia Sonera dissolved its economic interest in the local ownership means, 19.6% remaining merged with 20% local shares ? How can Axiata still have 80% then ?

  3. Basanta Kumar Dhakal

    February 11, 2019 at 1:08 pm

    Just want to say thank you for the article, that guides one thoroughly into the Ncell tax issue.

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    October 9, 2019 at 7:23 pm

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Being an entrepreneur in Nepal

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Being an entrepreneur isn’t easy in a country where you are judged by money you make and not the impact you create.  Your idea, your dream, your ambition are considered as threat than opportunity to collaborate for greater good.  It’s not easy to be an entrepreneur in a country where investors are interested to invest only if they can hijack your business.  It’s definitely not easy where rents are nothing less than 20,000 per month. And, it’s definitely not easy where no one is interested to work for you for anything less than salary s/he would get abroad. Needless to talk about taxes and policy hurdles.



You are celebrated only on Facebook.  In reality, you are secretly hated for your success and growth and popularity. It’s not easy to be an entrepreneur in a country with leg-pulling culture.

Sometimes, it feels like entrepreneurship is just a new high-school band trend, where everyone wants to become next Metallica, with a dream to make a world tour, but in reality you are judged for your long hair, tattoo; no family support, costly recording, and no one to buy your album and sooner or later, you be like:

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Despite all that, there are some guys out there not giving up on their entrepreneurial idea.  Finding a way out to resist the temptation of good paying job, home or abroad, and keep trying to make fortune here in one of the poorest countries itself.  They don’t remember themselves when was the last time they took the salary but still never fail to pay salary on time to colleagues working for him/her.  Constant pressure from family and society to make good money but still not taking the shortcut route to money compromising the impact and ethics.  Such guys are real entrepreneur to me.  They exist.

I bestow my love and respect and support to them. You guys are in making of Bryan Adams despite living Summer of 69.

May you not give up.




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Just how a germinating seed needs water, sunlight and proper nutrients to grow into a beautiful plant, any budding entrepreneur also needs funds to implement his/her startup ideas. This initial investment which helps to cover up the basic operating expenses, research and development expenses etc to grow the business until the product itself starts generating revenue is called Seed capital or Seed funding. Generally, seed capital is considered as the first round of investment until one develop his/her business to a certain level after which he/she can find venture capitalists to invest in them. So, where does the seed capital come from? Some of the easy sources may include :

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  2. Crowd Funding
  3. A seed-stage angel investor
  4. Corporate seed funds for startups
  5. Self – financing
  6. Government subsidized loans and grants

Finding an investor can be a challenging task as your startup is still in conceptual phase. Generally, the banks often ask for collateral against the applied loan. Even more, the interest rates may be high and not every person can afford to take the risk. On the other hand, investors may invest in you and your idea in exchange for certain equity in stake. This means you will be losing your share of full decision making authority over your business in exchange for his contributed amount of capital. However, reaching out for friends and family or using your own savings is always a good idea if you don’t want to get involved in debt. There are also government grants and subsidized loans in recent years that plan to support to aspiring entrepreneurs in the country. So, before you make your decision, make sure to do a good research and weigh all the pros and cons of each source to find one that actually compliments your business model, as it plays a determining role in the future of your business.

The author is a CA student.  If you want to add more information on the given post, please comment below and your comment will be incorporated in the article.


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