Government Records Rs. 12.5 Arba Profit Tax Collection from Mergers, Acquisitions, and FPOs as BFIs Meet Deadline

The Large Taxpayer Office revealed the collection of Rs. 12.5 Arba in profit tax from mergers, gains from acquisitions (bargain purchases), and profits derived from Follow-On Public Offerings (FPOs). This substantial amount was collected over the course of Friday and Saturday, with meticulous filings by numerous organizations.

On Friday, a total of 30 organizations contributed to this figure by filing taxes amounting to Rs. 11.3 Arba. The momentum continued on Saturday, with an additional 11 institutions filing taxes, totaling Rs. 1.44 Arba. Mr. Janak Sharma, the head of the Large Taxpayer Office, provided these details, emphasizing the proactive engagement of both public and private entities in fulfilling their tax obligations.

Crucially, it was revealed that among the 41 organizations that paid taxes on profits from FPO, 14 of them also paid taxes on profits from both FPO and bargain purchases resulting from mergers and acquisitions. The taxes collected fall under the purview of the current financial year, marking a significant boost in revenue generation.

The background of this revenue collection effort includes persistent recommendations from the Office of the Auditor General. Since the 57th annual report published in 2077 BS, concerns were raised regarding tax evasion related to premiums of FPO, gains from bargain purchases in mergers and acquisitions, and auction share sales. Despite the repeated concerns, the Ministry of Finance and the Inland Revenue Department initially overlooked the issue.

However, the 60th report of the Office reiterated the importance of recovering revenues from these sources. Finance Minister Dr. Prakash Sharan Mahat responded to these concerns by introducing an arrangement. According to this arrangement, companies paying taxes in premiums of FPO, bargain purchase gains of mergers and acquisitions, and auction share sales by the end of Mangsir would be exempted from fines and interests. The government intended to encourage timely payment of revenues.

This move faced legal scrutiny when 16 Banking and Financial Institutions (BFIs) filed a petition challenging the taxation initiative. The BFIs alleged that the government's decision to grant exemptions on fees and fines was unconstitutional, asserting that it amounted to imposing taxes against the constitutional framework. However, the constitutional bench of the Supreme Court recently dismissed the petition, upholding the government's position. The court ruled that the taxation did not constitute a levy on capital.

The formal announcement of the dismissal was made on last Thursday under the constitutional bench of Chief Justice Bishowambhar Prasad Shrestha, affirming the government's approach to taxation in this context.

BFIs were given a deadline to deposit the specified amount by the end of Mangsir, with the incentive that they would not be charged interest and penalties. As a result, companies proactively met this deadline, contributing significantly to the substantial revenue collection observed over the weekend.

How much tax was paid by which BFI under which title?