Major Win for Nepal Government as International Body Upholds Ncell Tax Liability

Nepal Government has been engaged in a long-standing dispute with Ncell, a prominent telecommunications company operating in the country. The dispute revolves around the payment of capital gains taxes related to the acquisition of Ncell by Axiata Group from Telia Sonera,  back in 2016. The transaction involved offshore transfer of shares of Reynolds Holdings Limited, a Saint Kitts and Nevis (a tax haven) based immediate holding company of Ncell to avoid any tax implications in Nepal. So, on paper, there was no transfer of shares of Nepal based Ncell but in effect, the majority ownership was effectively transferred. 

Since then, there had been accusations of tax evasion by TeliaSonera but since Ncell as the resident taxpayer in Nepal was liable to withhold the capital gain taxes, Ncell was asked to pay the capital gain taxes amounting to Rs. 35.91 Billion. Following the long pending litigation finally settled by the Supreme Court of Nepal, Axiata Group, the new owner of Ncell had filed a case at the International Centre for Settlement of Investment Disputes (ICSID) claiming damages of USD 420 Million (~Rs. 55.54 Billion). The Nepal Government can finally breathe a sigh of relief because had it lost the case, it would have been required to pay around USD 500 Million (~Rs. 66 Billion) including interest & expenses. 

However, the Nepal Government will still have to pay some compensatory damages which is yet to be finalized. But the silver lining here is that this will finally clear the ambiguities regarding tax treatment of offshore transactions in Nepal. Nepal Government’s participation in the dispute settlement process in an international forum will also boost investor confidence. 

Remittance Inflows to Nepal Hit One Billion Monthly Average in FY 2022/23

Nepal has experienced a significant increase in remittances during the current fiscal year 2022/23. In the first 10 months, remittances amounted to an average of NPR 1.05 trillion, with a monthly average of Rs. 1 billion. This represents a 23.4% growth compared to the same period in the previous year, which saw a marginal increase of 0.5%.

The influx of remittances in US dollars also rose by 13.4% to NPR 7.7 billion during the 10-month period, reversing the previous year's decline of 1.2%. There is also a  substantial 51.4% increase in the number of Nepalis obtaining final work permits for foreign employment, with 421,279 workers going abroad in the same 10-month period.

Moreover, the number of Nepalis obtaining re-entry labor permits for foreign employment increased by 3.7% to reach 238,976.

Nepal Witnesses Sharp 64% Decline in Foreign Direct Investment Inflow during FY 2022-23

The foreign direct investment (FDI) inflow into Nepal has declined by 64% during the first 10 months of the fiscal year 2022-23. The decline in FDI may have implications for Nepal's economic growth and development, as foreign investment plays a crucial role in stimulating various sectors of the economy. The government may need to reassess its policies and strategies to attract foreign investors and promote economic recovery in the post-pandemic period. Some significant announcements like removing the minimum threshold of foreign investment in the IT sector and reviewing the existing limits on other sectors were made during the budget speech but it needs to be seen how long it will take to implement these announcements. 

Tax Reforms in Nepal's Tourism Sector May Backfire? 

The tourism entrepreneurs in Nepal are urging the government to remove taxes imposed on tourism and air services. They argue that these taxes are negatively impacting the tourism industry, which has already been severely affected by the COVID-19 pandemic.  Starting from the next fiscal year, tour packages and air tickets will be subjected to luxury tax. Additionally, luxury hotels and resorts rated five stars or above will be required to pay an extra 2 percent luxury tax on their services. Moreover, Nepalese citizens traveling abroad on tourist visas will have to pay a 5 percent tourism fee for foreign trips.

These new taxes and fees are expected to make tour packages in Nepal more expensive, potentially leading tourists to choose neighboring countries or alternative destinations. This development could negatively impact the government's goal of attracting 1 million tourists this year and may also result in lower tax collections than anticipated. The private sector has expressed concerns over the potential consequences of these taxation changes and has warned that the government's tax collection target may not be met.

Nepal's Dog Chew Exports Reach New Heights

Nepal's dog chew exports are expected to reach Rs. 3 billion during the current fiscal year. The country has seen significant growth in the dog chew industry, with exports increasing steadily in recent years. The business witnessed significant growth in the last fiscal year 2021-22. The exports of dog chews increased by 38 percent to 1,744 tonnes, with the export value surging by 48 percent to Rs. 2.91 billion. In the first ten months of the current fiscal year, which ended in mid-May, dog chew shipments totaled 1,346 tonnes, valued at Rs. 2.53 billion. 

This represents an increase compared to the same period in the previous fiscal year when the exports were valued at Rs. 2.30 billion. Dog chews, made from yak milk, are in high demand in international markets, particularly in the United States and Europe. The growth in exports is attributed to increased production capacity and improved quality standards. The dog chew industry in Nepal has the potential to contribute to Nepal's economic growth and generate employment opportunities in rural areas where the product is manufactured.