Preparations to Make Provisions for FPO Tax and Merger Benefit Tax by Insurance Authority, Signs of Tightening in Dividend Distribution

Kathmandu : The Nepal Insurance Authority is going to make provisioning for the amount until the final decision is made regarding the tax on FPO income and merger profit.Insurance companies issued FPO by Nepal Insurance Authority and companies that have gained bargain purchase due to mergers have made provisioning for the tax liability created according to the Economic Act.According to the 26 of the Financial Act, if an entity does not file tax by including the dividend amount distributed as bonus shares to the beneficiaries up to the financial year 2078/79 from the amount received by issuing shares at a premium price from the Further Public Offering FPO in accordance with subsection 3 of Section 56 of the Income Tax Act 2058.

It is mentioned that if the tax on that amount is filed before the end of Mangshir 2080(Mid Dec 2023) , the fee and interest on the amount will be waived. On this basis, everyone has to pay tax for other similar earnings. In the list of companies that pay such tax, there will be many companies that have gone through mergers since last year with  Nepal Life.If any entity does not include the profit or purchase gain in the income for tax purposes after merging or negotiating in acquisition merger or acquisition and does not file the tax, the tax on such income for the financial year 2078-79 is filed before the end of Mangsir 2080(Mid of Dec 2023). And interest will be waived.Banks have been strongly opposing this provision saying that it is an effective law.

But According to Finance Minister  Dr. Prakasharan Mahat, the Internal Revenue Department is claiming that the Office of the Auditor General is wrong and the government has determined the tax on the same basis.With this arrangement, the dividends of dozens of companies will be affected. It is seen that 30 percent tax has to be paid even on the bargaining purchase gains earned during mergers and acquisitions. In the case of life insurance companies, only 25 percent will be taxed.Nepal Industry Confederation and Nepal Backers Association jointly drew the attention of the Prime Minister Pushpa Kamal Dahal in last April-May about the decision to impose tax on the share premium amount sold through FPO.

Banks and financial institutions, insurance companies and industrialists have also held a joint discussion on this issue. In the meeting at that time, Prime Minister Dahal also instructed the relevant agencies to postpone the decision. But his instructions did not make any sense.Such an obligation was created in the financial bill that was released along with the budget speech on 15th(May 29). Banks are pressing against it in all directions. The National Bank has not said much about this issue even though the banks have strongly opposed it.Banks and financial institutions have started declaring dividends. Approval should be obtained from Nepal Rastra Bank before declaring dividend. Such a provision in the Finance Bill has already been mentioned in the Finance Act.This makes it mandatory. Since it is mentioned in the law itself, even Nepal Rastra Bank and Insurance Authority cannot ignore it. So they are in the provisioning for the present and how the future will proceed.