KATHMANDU: Following the government’s direction to the authority concerned to collect revenues gained from the gains made through premium of FPO (follow-on public offer), mergers and acquisitions and sale of auction shares, over Rs 12.8 billion in revenue has been deposited in the state coffers in two days.
The amount was deposited in the state coffers until Friday and Saturday (4 PM), said Director General of the Inland Revenue Department, Dirgha Raj Mainali. There is a provision that one paying the revenue by today will be exempted of fines.
Since the 57th annual report published in 2077 BS by the Office of Auditor General, the Office of Auditor General has been asking the government to recover the amounts in revenue from premiums of FPO, purchase gains of mergers and acquisitions and auction share sales citing tax evasion in the process. However, the Ministry of Finance and the Inland Revenue Department had been ignoring the issue raised by the Office.
The apex court, on Thursday, upheld the government’s decision to collect tax on mergers and FPOs. A full bench comprising Chief Justice Bishwombhar Prasad Shrestha and justices Ananda Mohan Bhattarai, Sapana Pradhan Malla, Sushmalata Mathema and Kumar Regmi invalidated the writ filed by the bankers some three months ago.
The government was able to generate Rs 11 billion in revenue in a single day after banks and other financial institutions that either went for a merger or issued FPOs paid taxes on Friday as per the SC’s ruling.
Finance Minister Dr Prakash Sharan Mahat had made arrangements for imposing tax on the income generated through FPO and mergers in the Economic Bill of the current Fiscal Year (FY) 2023/24. A total of 16 commercial banks had registered a joint petition in the SC on September 15, demanding the annulment of clauses 26 and 27 of the Economic Bill.
In the writ petition, the bankers claimed that the provision of taxation on profit received through merger or acquisition and issuance of FPO at a premium rate is ‘ex post facto taxation’ and is against the constitution. Bankers further argued that the premium and bargain purchase gains are not taxable incomes.
They also asserted that since tax and profit tax have already been paid by beneficiaries while receiving bonus shares, collecting tax again on the same amount goes against the law. Additionally, they claimed that new taxes have been imposed which are against the constitutional provisions, potentially spoiling the investment climate in the country.
The BFIs are reported to have been left to pay the government Rs 20 billion for mergers and acquisitions, while Rs 6 billion is left to be paid on dividends of the FPOs.
Previously, public companies such as banks, insurance companies, and hydroelectricity firms were not required to pay taxes on such profits. However, the Economic Bill, 2023 introduced provisions to collect income tax on bonus shares distributed from FPO proceeds and on the gains obtained during merger and acquisition transactions.
Based on the 57th report of the Office of the Auditor General that emphasized the need to collect income tax on dividends derived from FPO premiums and auction shares, citing relevant provisions in the Income Tax Act, 2002, the government reimposed the law, prompting the bankers to challenge the government’s decision at the SC. RSS