BFIs under pressure to pay Rs 20 billion income tax on mergers and acquisitions and Rs 6 billion FPO premium by Friday

KATHMANDU, Dec 15: The Supreme Court (SC) on Thursday rejected the plea of the bankers, asking them to pay income tax dues on profits and dividends generated from the premium of Further Public Offerings (FPOs) and on the gains obtained during merger and acquisition transactions.

With the SC’s verdict, banks and financial institutions (BFIs) now have to clear their tax dues under the heading. A full bench of 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 through the announcement of the budget for this fiscal year resumed the controversial income tax on profits on these two issues. However, bankers have been protesting against the government's decisions.

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. If the bankers concerned do not clear the tax dues by Friday, they will slap additional charges and interest on their outstanding dues.  

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. But the bankers went to challenge the government’s step at the Supreme Court.

In September this year, 16 commercial banks jointly filed a petition at the SC opposing tax provisions introduced by the government. On October 5, the SC issued a ‘show cause order’ on the issue.  

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 an ‘ex post facto taxation' and it is against the constitution.

Bankers argued that the premium and bargain purchase gains are not taxable incomes. They 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.

 
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