Bankers Demand Repeal of Tax on FPO and Collective Trading; Writ Filed in Supreme Court

KATHMANDU:  The government has faced criticism from bankers as they demand the withdrawal of the tax imposed under the Public Offering (FPO) and the process of collective trading (Margin Purchase Gen) after implementing the provisions related to banks and financial institutions in the Economic Act of the current fiscal year. Bankers have filed a writ petition in the Supreme Court demanding the revocation of the said tax.

Even though the Internal Revenue Department’s two directors decided not to impose tax on FPO and Merger Acquisition, the government, in response to the 58th report of the Office of the Auditor General raising questions against the decision, has made provisions to impose tax on December 26 and 27 of the current fiscal year. Against this, bankers have filed a writ petition in the Supreme Court.

Out of 20, 16 commercial banks are in favor of withdrawing the tax. The three banks owned by the government, namely Nepal Bank Limited, Agriculture Development Bank, National Commerce Bank, and Everest Bank in the private sector, have not participated in the case.

In opposition to the provision of imposing tax on FPO and Margin Purchase Gen in the Economic Act, 16 commercial banks filed a writ petition in the Supreme Court on September 29. The Supreme Court issued an interim order demanding the withdrawal of the interim order against the banks on October 29.

The case, which started from October 10, will be heard in the Supreme Court on December 20. In this case, the Supreme Court will conduct a full hearing on December 17 to dismiss the interim order against the banks, with the aim of imposing tax on the government.

Banks and financial institutions have criticized the government for discouraging investment by imposing tax on FPO, which involves issuing shares at a premium and is considered against international practices. Even though the Internal Revenue Department’s two directors decided not to impose tax on FPO and Merger Acquisition, the banks and financial institutions are dissatisfied with the government’s decision to impose tax against their will.

Prithvi Bahadur Pande, Chairman of Nepal Investment Mega Bank, says that the government has misunderstood the meaning of FPO. “The government does not understand the meaning of FPO. FPO is also capital. How is tax levied on capital? IPO means issuing shares to the public at a premium of Rs 100 per share based on the financial details of the last three years. FPO is the process of selling shares at a premium of Rs 100,” Pande explained.

“The government can impose tax in any sector. The government has that right. But it is not effective as the government will not be able to impose tax. In the past, the government has given us a tax certificate,” he added.

While giving the authority to the banks to issue FPO for the growth of funds, the Nepal Rastra Bank has given its statement that the banks and financial institutions have the right to issue FPO. The banks and financial institutions have been transparent so far and have not been negligent in paying taxes, according to them. The government’s decision to impose unnecessary distress on them after making the decision to impose tax based on the report of the Office of the Auditor General has raised questions among banks and financial institutions.

After the government decided to impose tax based on the report of the Office of the Auditor General, banks and financial institutions and insurance companies issuing FPO have been in trouble. Companies such as Nepal Life Insurance Company, Shikhar Insurance, Premier Insurance, and others have been affected by the decision to issue FPO and increase capital. Pokhara Finance Company and Shivam Cement, among others, have also issued shares through FPO.

Similarly, under the merger and acquisition, Global IME Bank has merged 21 banks and financial institutions. Recently, Sunrise Bank and Laxmi Bank merged to become Laxmi Sunrise Bank. These banks have also faced tax-related challenges. The last time the public received the most shares on the basis of capital, a bank that became the largest bank by merging in the private sector was formed.