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A simple guide to “Ncell tax scandal” for dummies

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This article is created to give a simplest perspective on what’s the fuss and buzz on Ncell issue, for general public who are just curious to understand the issue for general knowledge purpose only.



First thing to understand

A foreign company can only invest in Nepal with local resident holding at least 20% of shares.  So there comes the company Raynold Holdings to invest in Ncell with 80% shares and 20% shares by local resident, Niraj Govinda Shrestha

Second thing to understand

There is a company TellaSonera Asia Holdings which owns 100% shares on Raynold Holdings.  That makes TellaSonera indirectly owning 80% shares on Ncell.

Before moving to next thing, let’s recap

Raynold Holdings, a foreign company, owned completely by another foreign company, had invested in Ncell taking 80% shares through FDI.

They made loads of money in Nepal.  Ncell was just 10 cr company and with its superb business success and growth, value went to multi crores.

WHAT HAPPENS NEXT

AXIATA, a UK-based company wants to invest in Ncell not by coming to Nepal directly through FDI but by buying Raynold Holdings from TeliaSonera.  AXIATA is based outside Nepal, and so the TeliaSonera which owns Raynold Holdings.

TeliaSonera then comes up official press release stating that “TeliaSonera has agreed to sell its 60.4 percent ownership in the Nepalese operator Ncell to Axiata, one of Asia’s largest telecommunication groups, for USD 1,030 million on a cash and debt free basis. At the same time, TeliaSonera will dissolve its economic interests in the 20 percent local ownership and receives approximately USD 48 million.

 

AXIATA gives the money to TeliaSonera and owns the company Raynold Holdings which is 80% shareholder of Ncell.

 SO WHAT IS THE ISSUE?

TeliaSonera made billions of dollars and didn’t pay a penny to government on capital gain tax.  AND THAT WAS THE ISSUE!!

Why?? Because, technically speaking TeliaSonera made billions simply by selling Raynold Holdings outside Nepal.  Just that by buying Raynold Holdings, all its assets  automatically went to the new buyer, which is AXIATA.  And one of the assets of Raynold Holdings is 80% shares on Ncell.   Even after the deal, the substantial holding of NCell would continue to remain with Reynolds Holding and so legally there would be no change in shareholding of NCell in Nepal. This is regarded as an indirect transfer of underlying ownership.

SO, IT WAS A WELL PLAYED GAME, HUH?

Very well played! In the eye of law, FDI Company Raynold Holdings is still the 80% owner of Ncell, which happened to have changed its parent company from TeliaSonera to Axiata — Raynold Holdings nor Ncell made any capital gain to tax.

And?

Well! TeliaSonera could not be taxed since legally speaking there was no buy and sell within the country, so Supreme Court on Wednesday issued a mandamus order directing the government to recover the due capital gains tax from Ncell and Axiata.

Will Ncell and Axiata pay the due capital gains which, principally speaking, is supposed to be paid by the party who actually had made the gain, is yet to see.

This interesting game of loophole is what made Ncell a curious case.





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Financial Literacy: Inflation, the rat that eats your money

This article is brought to you in partnership with Muktinath Bikas Bank as part of our mission of spreading financial literacy among our readers.

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You must have heard many times people saying “10 years back, the price of momo per plate used to be 50 rupees and now its 100,” “back then rice used to cost 50 rupees per kg and now it costs 100 rupees.” In simple terms, they call it price rise (mahangi) and in economic terms, it’s called inflation.

What is inflation

Inflation is the decline of purchasing power of a given currency over time. Like for example, if you could buy a packet of milk at 30 rupees but if it now costs 50 rupees, what actually has happened is a decline in purchasing power of the currency because of which, what you could buy at 30 rupees, to buy the same thing now you need 50 rupees.

In economic terms, it’s not the price that has risen up but the purchasing power of the currency has decreased.

What causes inflation

Answer is complex, because well! economics is complex. Since this post is to give a simple guide over inflation, let’s keep it simple. There are various factors that can drive prices or inflation in an economy but typically speaking, inflation results from an increase in production costs or an increase in demand for products and services.

Production cost: Let’s say the government hiked the taxes, employees demanded a raise in salary, the farmer association raised the price of wheat, and all that increased the production cost of bread by 10%. That rise in production cost will rise the cost of bread. The bread that you could get at 20 rupees will now become 22.

Increase in demand: Because of lockdown, everyone is hoarding rice. Rice is in high demand. In free markets, the traders will raise the price of rice. Now, the rice that you could get at 50 rupees per kg will cost you 60 rupees.

That way, what you could buy at X amount, now you need to pay Y amount to get the same thing. That’s inflation.

What inflation should mean to you

It should mean everything to you. Imagine you have 1 lakh in your account in 2021. In one year, the market inflated by 50%, meaning your 1 lakh has become 50 thousand. Of course, in 2022, you will still see one lakh in your account, but its actual value only equals to 50 thousands that of 2021.

Currency itself means nothing. The value of your currency is determined by its purchasing power. If in 2000 you could buy a packet of milk at 10 rupees rupees and the very same milk if costs 50 rupees now in 2021, technically speaking, the value of your money is eroded by times 5. That means, in 2000, if you had kept 50 thousands in your secret vault at home, in 2021, when you take that money out, that money would be worth only 10 thousands.

See, inflation eats your money!!

That is why inflation is the biggest concern of every government and economist. Generally, moderate inflation is considered good for economics and is aimed to be kept at around 2-3% by central bank or federal bank.

How to save your money from eating up by inflation

Simple answer, grow your money at a higher rate than the inflation rate. Keeping it under the mattress will only eat all your money in the long run.

There are two ways of growing your money:

  1. Invest.
  2. Give it to a bank.

Investing means putting your money into business. Say, if you have invested 100 rupees and it earns you 200 rupees, your money has grown by 100% which by adjusting with inflation rate of 5%, it has still grown by around 95%.

However, investment is subject to market risk. 100 rupees invested may also become Rs. 10 if business fails. That’s why wise financial advice is – never invest all your money and instead put some over saving accounts that you would earn interests.

There are different types of saving accounts out there offered by banks ranging interest rate from 2% to 7% depending on type of saving accounts. This is where you should be careful.

Since now you understand inflation, imagine this – you keep your money in bank that offers you 2% interest, whereas inflation rate is 4%. In this case, even by keeping your money in bank, your money is still being eaten up by inflation.

Never keep your money in banks that offer less interest rate than inflation rate!

Many people’s confusion and the solution

Many people, especially youth, are not interested to locking their money in bank in fixed deposit because they may not be able to use or pull their money when they want before the maturity. Instead, they want it to be in a floating state. That way, they have their money in bank and still have the freedom to pull or use it anytime they want.

Problem with the most of such saving account is that they offer very little interest of 2-3%, but since now you know, it is always wise to find a bank that offers interest rate higher than the inflation rate, Muktinath Bikas Bank has come up with the solution to your dilemma through saving account “Muktinath Sambridhi Bachat Khata.” Unlike a fixed deposit account, you can draw your money at anytime you want yet you will be earning interest at 5.01%, which is higher than the predicted inflation rate for the year 2021. Another interesting and impressive feature of this saving account is that you earn interest on a monthly basis, unlike standard practice in the market of quarterly payment.

The perfect solution for those who don’t want to lock their money in fixed deposit yet want to earn interest more than the inflation rate.

Hope, this article helped you to get the clear understanding of what is inflation, how it affects you and your money and how to safeguard your money from being eaten up by inflation. Also, hope you liked the solution offered by Muktinath Bikas Bank. You can apply for theMuktinath Sambridhi Bachat Khata by CLICK HERE.

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What is Seed Capital?

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Just how a germinating seed needs water, sunlight and proper nutrients to grow into a beautiful plant, any budding entrepreneur also needs funds to implement his/her startup ideas. This initial investment which helps to cover up the basic operating expenses, research and development expenses etc to grow the business until the product itself starts generating revenue is called Seed capital or Seed funding. Generally, seed capital is considered as the first round of investment until one develop his/her business to a certain level after which he/she can find venture capitalists to invest in them. So, where does the seed capital come from? Some of the easy sources may include :

  1. Friends or Family
  2. Crowd Funding
  3. A seed-stage angel investor
  4. Corporate seed funds for startups
  5. Self – financing
  6. Government subsidized loans and grants

Finding an investor can be a challenging task as your startup is still in conceptual phase. Generally, the banks often ask for collateral against the applied loan. Even more, the interest rates may be high and not every person can afford to take the risk. On the other hand, investors may invest in you and your idea in exchange for certain equity in stake. This means you will be losing your share of full decision making authority over your business in exchange for his contributed amount of capital. However, reaching out for friends and family or using your own savings is always a good idea if you don’t want to get involved in debt. There are also government grants and subsidized loans in recent years that plan to support to aspiring entrepreneurs in the country. So, before you make your decision, make sure to do a good research and weigh all the pros and cons of each source to find one that actually compliments your business model, as it plays a determining role in the future of your business.

The author is a CA student.  If you want to add more information on the given post, please comment below and your comment will be incorporated in the article.


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Smartphones are very expensive in Nepal – Here’s Why!

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It is no news that the price of smartphones in Nepal is crazy. I mean, yes, we might be used to with expensive prices, but compare those prices to international ones, or even the neighbouring country for that matter, and you’ll know. When you allocate some budget to get a good phone, you check out reviews and stuff. And just when you think you can have the one, you have your heart set on, the price differs – by a lot! And it is, of course, common to accuse retailers here of extracting a large profit, but there are also quite a few reasons why smartphones are so expensive in Nepal.

1. Taxes, Taxes

The current fiscal year of Nepal brought quite a few changes in the Nepali tax policies. Prices of almost everything went up, including electronics and gadgets. Before this new tax policies, smartphone importers paid only 13% of tax. And on top of that, 40% of VAT was refunded to them at the end of the fiscal year. That made it a net total of 7.8% on taxes.

But with the new policy, the 40% VAT refund has been waived. And in addition to the 13% tax, another 5% of excise duty has been added, making it a net total of 18.65% on taxes alone! And that is enough to stir the prices of such phones and gadgets upwards. This, however, is only for smartphones. There are other policies for other electronics and automobiles.

2. Distribution Channels

The economy of the country is not strong enough to attract official retailers themselves. For example, we only have Samsung, Huawei and Xiaomi’s official presence in Nepal. But for other phones, they arrive through various distribution channels. There are agents, regional distributors, wholesalers, etc. before the products even make it to retailers. And with each part of the distribution channel nicking off some profit, it’s only natural that the prices go up.

How does it work? First, there’s the company, i.e. the brand itself. Then come the National Distributors (NDs), followed by Regional Distributors (RDs), Retailers and Mobile Stores. NDs import the smartphones for which, they pay a certain bank guarantee to the brand. This assurace financial safety to the company as well. The same thing happens with NDs and RDs. RDs are responsible for placement of phones to retailers, who, in turn, deal with mobile brands. Hence, this creates a long chain, where each party involved has a certain profit margin.

Also, NDs have their own team of sales promoters, who promote their products in mobile stores. Ever seen someone in the company mascot’s costume? Yeah…that’s them. They also have their own marketing team, sales officers and product team who help improve sales and marketing of a product. As for RDs, they possess local level knowledge of the market, and maintain good relation with retailers. Thus, from the company’s point of view, these parties are necessary link in the chain too. So, we can see why they are needed.

And if you ask why don’t the company’s bring the phones straight to retailers, here’s why:

3. Lack of proper e-commerce

The smartphone marketplace of Nepal, or any other small developing countries for that matter, differs a lot from international scenario. Many phone companies have a strong presence in e-commerce and sell their product online via sites like Amazon, BestBuy, GearBest, etc. And they even provide various discounts from time to time. Their online presence is so strong that they even have online exclusive brands!

For example, there are brands like Realme, which is an online exclusive brand internationally. Honor, is also an online exclusive brand but is slowly moving to offline as well. Samsung’s new phones, the M-series are also online exclusive. But, in Nepal, all of these three are sold offline. Because, the e-commerce platform is not very developed. There is lack of proper e-payment gateways, and most people hesitate to buy things online, for good reasons.

This leads to popularity of brick-and-mortar stores, which increases the expenditures of phone retailers. And that too, leads to an increase in pricing. If you compare the pricing of Honor phones in Nepal with international market, you’ll know!

4. Economies of Scale

If you are a little bit familiar with the Economics, then, you probably know the economies of scale – i.e. larger the quantity, lower the price. It applies almost anywhere – from printing stuff, to banquet halls and yes, smartphones. Since the economy of Nepal is not as strong, the number of phones sold in the country are a lot less than in others.

While smartphones ship by the millions in other countries, we play in thousands here, and only among hundreds for very expensive flagship ones. This affects the cost per unit of these products, hence, adding up more burden to their prices.

5. Everything is imported!

This is no surprise. Since almost all of what we use are imported, smartphones are the same. What I mean is, there are no in-house manufacturing plants to make smartphones, or even assembling houses to assemble components. Countries like China and India have their own manufacturing plants, so, they can price the phones accordingly.

When whole gadgets are imported instead of parts, the excise duties are considerably higher. Add the distribution channelling to it, and shipping costs, you get the Nepali prices for smartphones!

So, why are smartphones so expensive in Nepal? You have the answer.

A version of this article appears on GadgetByte Nepal. Do check the website for more tech-news and such.

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