Axiata Group secured a deal to sell off its majority share in its Nepalese operation Ncell, effectively ending the group’s business in Nepal after seven years due to a tax dispute.
In a statement, Axiata said it entered an unconditional sale and purchase agreement with Spectrlite UK, for its holding company Reynolds which holds around 80% stake in Ncell and a mobile licence running until 2029.
Axiata chairman Tan Sri Shahril Ridza Ridzuan said: "The increasing challenges in the operating environment represents a fundamental shift. It has led the Axiata board to conclude, after a thorough process, that our foray in Nepal cannot continue due to the unfavourable conditions for Axiata."
The operator entered Nepal in 2016 after acquiring Reynolds for US$1.3 billion and securing the 80% stake in Ncell it is now selling.
The reason for Axiata's exit stems from a highly disputed capital gains tax bill from the Nepalese government.
Axiata noted it paid NPR47 billion (US$421.9 million) in capital gains tax to the Large Taxpayers Office of Nepal (LTPO) in April 2020 for the acquisition of Reynolds, and stated it received confirmation from the tax office that there will be no further taxes.
But the LTPO demanded NPR57.9 billion (US$433.6 million) extra for the transaction after further assessment in January 2021.
The money has not been collected by the LTPO as Axiata took the matter to the Supreme Court of Nepal which issued an interim order. The company noted: “Capital gains tax was imposed on Ncell and Axiata after Nepal's efforts to collect tax from the seller failed.”
Axiata filed the matter to the International Centre for the Settlement of Investment Disputes, which found in June this year that Nepal should cease its demand for further taxation for the 2016 acquisition.
Despite this, the Nepalese government has yet to withdraw its demand for the extra payment.
Axiata argued if it paid the extra tax, it would take the overall capital gains tax bill to USD855.5 million, or 62.7% of the transaction of Reynolds (US$1.3 billion) to enter the market.
Axiata blasted conditions in Nepal, highlighting double taxation, expiry of its licence in 2029, potential expropriation of Axiata’s stake by the government and unfavourable foreign investment protection.
The company claimed to be the largest tax payer in Nepal, contributing NPR283.0 billion in taxes and fees as of its fiscal 2021/2022 since inception. It has over 17 million subscribers across its network.
Vivek Sood, Group Chief Executive Officer and Managing Director of Axiata added the sale enables a “clean exit” from Nepal.
The company revealed intentions to leave Nepal in its financial results this week.
