Supreme Court Suspends Capital Gains Tax Exemption for Dolma Impact Fund

Kathmandu — Nepal’s Supreme Court has issued an interim order halting the implementation of a government decision that granted capital gains tax exemption to Dolma Impact Fund, a foreign investment vehicle operating in Nepal.

A joint bench of Justices Mahesh Sharma Paudel and Bal Krishna Dhakal directed authorities not to enforce the decision made by the Inland Revenue Department to waive capital gains tax on profits earned by the fund from the sale of shares in Nepal. The order will remain in effect until the court reaches a final verdict.

Background

The dispute arose after the Inland Revenue Department, on October 28, issued a letter instructing CDS and Clearing Limited not to deduct capital gains tax from proceeds generated by “Fund–1” under Dolma Impact Fund. This effectively cleared the way for profits to be transferred abroad without tax deduction.

Dolma Impact Fund has invested in 16 companies in Nepal across sectors including renewable energy, financial services and technology. The government justified the exemption citing the Double Taxation Avoidance Agreement (DTAA) between Nepal and Mauritius.

However, Section 73(9)(50) of Nepal’s Income Tax Act, 2002 (2058 BS) restricts treaty benefits where more than 50% ownership is not held by residents of the treaty partner country. The interim order indicates that this condition may not have been fulfilled in the fund’s case.

Advocate Bhesraj Luintel filed the writ petition seeking to block the exemption and prevent the approval of fund transfers abroad without tax deduction.

Treaty Context

On November 12, Nepal’s Cabinet decided to terminate its double taxation agreement with Mauritius, originally signed on October 3, 1999. The government had relied on this agreement as the legal basis for the tax waiver.

The Supreme Court’s interim order will remain in effect until the case is fully adjudicated.

Civic View — SwatantraPatra.com

From a civic and governance perspective, the controversy highlights growing public concern over transparency, tax fairness and equal treatment under the law.

Citizens expect that domestic revenue laws apply uniformly — whether to local businesses or foreign investment funds. While attracting foreign direct investment remains important for Nepal’s economic growth, civic voices argue that incentives must remain within the framework of existing legislation and parliamentary intent.

The case also underscores the importance of institutional checks and balances. The judiciary’s intervention reflects the constitutional role of the courts in reviewing executive decisions, particularly where public revenue and treaty interpretation are involved.

For many civic observers, the broader question is not only about one fund, but about policy clarity: How should Nepal balance investment promotion with tax sovereignty? The Supreme Court’s final verdict may provide long-term guidance on that balance.