KATHMANDU, Nov 6: The proposal for income tax exemption sought by Nepal’s only international private equity fund—Dolma Impact Fund — for six companies reached the Cabinet but was not recorded in the official minutes. Chief Secretary Eaknarayan Aryal withheld the proposal from being included in the Cabinet record after the Internal Revenue Office (IRO) refused to grant the exemption to a foreign-invested company.
“The issue of tax exemption was raised in the Cabinet meeting a week ago, but it hasn’t been recorded in the minute yet. Until the Chief Secretary writes it down, the decision isn’t official,” a source at the Prime Minister’s Office said. Republica Daily had published a report on Tuesday titled ‘Proposal of Dolma Fund’s Tax Exemption Reaches Cabinet.’ Following that report, it came to light that even though the Cabinet had made the decision, the Chief Secretary refused to certify it.
Before the proposal reached the Cabinet, the Ministry of Finance had sought an opinion from the Office of the Attorney General in September. The Attorney General’s Office advised that such a tax exemption could not be granted. Despite the negative opinion, the proposal was forwarded to the Cabinet, where Chief Secretary Aryal stopped it by not recording it in the minute.
If the Prime Minister instructs the Chief Secretary to record the decision, Aryal cannot resist it. On October 30, the Cabinet meeting made a controversial decision to grant a tax exemption to Dolma Impact Fund, which has invested in more than a dozen companies in Nepal. Attempts to reach Chief Secretary Aryal for comment were unsuccessful.
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Dolma Impact Fund had requested income tax exemption for companies it has invested in, including Sasto Deal Pvt Ltd, Swet Ganga Hydropower and Construction, Makar Jitumaya Suri Hydropower, Solar Farm, Rhododendron Biotech Pvt Ltd, and Nidan Hospital.
In the legal opinion sent by the Deputy Attorney General, it was mentioned that Dolma Impact Fund is liable to pay capital gains tax. “Under Section 73 of the Income Tax Act, following the principle of Limitation on Benefits, only companies from a contracting country with more than 50 percent ownership are eligible for double taxation relief,” the opinion stated.
According to sources, since foreign investment in these companies is much less than 50 percent, the exemption could not be granted.
Dolma Impact Fund has been investing in international private equity in Nepal and has played a key role in bringing foreign direct investment (FDI) into the country. The Dolma Group includes Dolma Impact Fund, Dolma Himalayan Energy, Dolma Consulting, and Dolma Foundation. Due to the ambiguous provisions in Nepal’s Income Tax Act, finance officials feared controversy and hesitated to grant the exemption. The company is registered in Mauritius, and although the Double Taxation Agreement (DTA) allows for exemption, Nepal’s tax law lacks a clear provision for it, a Finance Ministry official said.
A Finance Ministry source claimed that although Dolma could have approached the Revenue Tribunal, it instead lobbied to get the decision from the Cabinet. “It seems they avoided the tribunal, fearing they might lose the case, so they tried to secure a Cabinet decision instead,” the official said.
Chief Secretary Aryal reportedly blocked the decision after understanding the issue. “Chief Secretary Eaknarayan Aryal has not certified the decision yet. Because of his refusal, the matter of tax exemption has not proceeded to the concerned authority,” a high-level source said.
During the previous government, companies linked to top political leaders had also requested tax exemption, but the administration under KP Sharma Oli did not dare to approve it. The current interim government, however, made the decision despite similar lobbying from businesspeople and leaders close to the former government. “It’s not right for a government that claims to stand for good governance to approve such tax exemptions,” said an employee at the Prime Minister’s Office.
According to sources, Dolma has been lobbying for tax exemptions for years, but earlier governments never approved them. Nepal has no formal trade agreement with Mauritius. Experts warn that if the government relies on the DTA with Mauritius to justify the decision and later cancels the treaty, it could cause significant loss to the state.
