BFIs Lose Tax Dispute Over Mergers and FPO as Supreme Court Ruling Upholds Government's Stance; Deadline Set at End of Mangsir

Banks and Financial Institutions (BFI's) are now compelled to fulfill tax obligations on the gains derived from the issue of Further Public Offering (FPO) at the premium price and bargain purchases resulting from mergers and acquisitions within the end of Mangsir, following the dismissal of a petition challenging the government's taxation policy by the constitutional bench of the Supreme Court.

The government, through the financial bill of the fiscal year 2080/81, had instituted provisions for the mandatory filing of income tax in cases involving the issuance of bonus shares derived from the bargain purchase gains of mergers and acquisitions, as well as premiums from Further Public Offerings (FPOs).

A petition challenging this taxation initiative, filed by several BFIs, was recently dismissed by the constitutional bench of the Supreme Court. The court upheld the government's position, rejecting claims that the taxation amounted to a levy on capital. The dismissal of the writ was formally announced on Thursday.

Finance Minister Dr. Prakash Sharan Mahat clarified that the specific tax collection related to this matter would be addressed in the forthcoming economic bill, slated to be presented during the joint session of the Federal Parliament.

The financial bill explicitly stipulates that if income derived from the bargain purchase gains of mergers and acquisitions is not reported as taxable income by the conclusion of the month of Mangsir in the year 2080, any associated fees and interest levied for the late filing of taxes will be waived.

Furthermore, the bill outlines a similar provision for dividends distributed as bonus shares to beneficiaries until the fiscal year 2078/79, originating from shares issued at a premium price through FPOs. The bill asserts that if the tax on such income, as per the provisions of section 56(3) of the Income Tax Act, 2058, is not filed by the end of Mangsir 2080, the associated fees and interest will be waived.

Several financial institutions, including banks led by Nepal Investment Mega Bank, life insurance companies led by Nepal Life Insurance, and non-life insurance companies led by Shikhar Insurance, had initially contested the government's taxation stance through writs filed in the constitutional bench of the Supreme Court. Their argument centered on the assertion that the government was attempting to impose taxes on capital and subject them to double taxation, especially after having already issued tax payment certificates. However, with the Supreme Court's decision to dismiss the writs, these financial entities are now obligated to file their taxes by the conclusion of Mangsir. Failure to comply will result in the imposition of fees and interest charges.