Upendra Mahato made millions and paid almost no taxes

He is one of Nepal’s richest tycoons with a net worth in the millions of dollars. But just how much of Upendra Mahato’s fortune was derived from his involvement in Ncell, one of the country’s biggest businesses? And how much tax has he paid on his profits? 

Mahato appears to have sold his Ncell (previously called Spice Nepal) shares in 2008, and again in 2012. In both cases, our findings raise the question: did Mahato avoid taxes on hundreds of millions of dollars in profit from these sales by stashing the money offshore?

There is evidence that suggests that $203 million may have been paid offshore in 2008 for shares in the Ncell, then called Spice Nepal. It is possible that some or all of a $230 million offshore loan to buy a 20 percent share in Ncell in 2012 may have ended up with Mahato.

After twice being presented with questions regarding these dealings, Mahato spoke briefly with the Centre for Investigative Journalism-Nepal (CIJ-N). 

“Some people can't digest the fact that Nepali businessmen have done well overseas. That's why they go after these businessmen looking for holes in their [business] dealings,” Mahato told CIJ-N. “As far as the question of wrongdoing in the transaction of 20 percent share is concerned, if Telia bought the share illegally, it should not be legalised by letting the company pay the taxes. It should be confiscated. An illegal act should not be legalised by taxing it. That's all I have to say.” 

The Cyprus structure

Back in 2008, the Visor Group of Kazakhstan held a majority 60 percent stake in Spice Nepal while two companies apparently controlled by Mahato himself, one based in Cyprus and the other in Nepal, owned 40 percent.

CIJ-N obtained a document that appears to be a sales and purchase agreement, dated May 19, 2008, which says that Mahato’s Cyprus-based company, Daltotrade, agreed to sell 20 percent of its stake in Spice Nepal for $203 million to Reynolds Holding, an offshore company controlled by Visor.

Mahato appears to have signed the document, the text of which also indicates that the Swedish multinational telecom company, Telia, had an interest in the deal. This interest would eventually manifest in Telia’s plans to become an investor in Spice Nepal. 

CIJ-N reached out to Telia, Visor, and Mahato to confirm the authenticity of this document but none of them responded specifically to our questions.

Daltotrade ended up selling its Spice Nepal shares to Reynolds in July 2008, according to official records. 

Then, in October 2008, Telia acquired indirect control of Spice Nepal from Visor via a tax haven in the Netherlands. According to Telia, it paid Visor, along with a smaller telecoms company in Cambodia, $484 million for this investment.

If Daltotrade sold its Spice Nepal shares for $203 million, as the document implies, then the tax bill in Nepal would have been around $50 million, as Nepal charges a tax rate of 25 percent on capital gains earned by non-residents through the sale of their shares in local companies. 

However, there are reasons to believe that profits from the sales of the shares may have been placed offshore and thus, not taxed in Nepal.

Daltotrade, which has since been dissolved, was domiciled in Cyprus, a tax haven in the Mediterranean. And according to a statement from Nepal’s central bank, in response to a freedom of information request, it has no record of Mahato having ever brought back this amount of money to Nepal. 

A government source with direct knowledge of the matter says that Nepal’s tax authority issued a demand for due taxes but ended up collecting less than $1 million.

CIJ-N put these matters to Mahato but he has chosen not to respond.

Telia too declined to comment about the specifics of these share deals in 2008. The Swedish company said that it “has paid taxes that are required by law to be paid” and denied that it had contributed to any tax not being paid in Nepal by others. 

In 2012, Mahato sold his remaining 20 percent stake in Ncell to his business associate Niraj Govinda Shrestha. Mahato has told a court in Nepal that he was paid about$3 million from this sale.

However, Telia lent Shrestha $230 million in 2012 via a tax haven in the Netherlands. A Telia spokesman later told the media that the loan “financed” Shrestha’s purchase of the 20 percent stake in Ncell. No such loan has been reported to the central bank in Nepal, as required by law. 

This raises an important question: did Shrestha pay some or all of the $230 million to Mahato or entities linked to him, somewhere outside Nepal? 

If so, then it is possible that one of Nepal’s richest men may have earned more than $400m from the sale of Ncell shares: as much as $203 million in 2008 and as much as $230 million, in 2012.

It is unclear how much of his own money Mahato invested in Spice Nepal (later Ncell), and he declined to tell us. 

A confidential source with detailed knowledge of the telecoms company’s finances in the mid-2000s told us that Mahato “probably invested about forty million rupees” (less than $1 million) of his own money in it.

If Mahato’s total investment in the company was as small as this, then he would have made an enormous profit. We put this point to Mahato and asked him for a comment, but he did not respond.

Nepal’s Large Taxpayer Office has accused Mahato of avoiding capital gains taxes on the 2012 share sale by under-reporting its value. Mahato has challenged the tax authority, arguing in a statement to the court that it had acted arbitrarily and unfairly in his case. The case has yet to be resolved.

Our findings raise questions as to how much tax Mahato should have paid on his profits in 2008 as well. 

Path to the top

Today, Mahato lives with his family in a domed neoclassical villa in Bishalnagar, an upmarket area in Kathmandu, according to Property, a real-estate magazine.

The sprawling property boasts landscaped gardens while the opulent interior of the home itself was reportedly renovated by a Russian architect.

Russia and the former Soviet Union have loomed large in the life of Upendra Mahato, who completed a master’s degree in engineering from the State Polytechnic Academy in Belarus in 1988. 

When the Soviet Union collapsed in 1991, Mahato, like many entrepreneurs, sniffed opportunity amid the chaos. He reportedly dealt in oil products, televisions, and real estate and bought Amkodor, a manufacturer of heavy machinery that is based in Minsk, the capital of Belarus.

Aidan Karibzhanov, chair of Visor, the Kazakh investment firm which became Mahato’s partner in Ncell, told the Russian-language InBusiness news site in 2016 that Mahato’s television manufacturing business had not gone well. 

But then his fortunes improved: “They converted the warehouse of their television plant [in Moscow] into the largest flea market through which pirated CDs, electronics and other things were sold. So this Nepalese suddenly became a very wealthy man.”

We asked Mahato about this but he did not respond. We also contacted Visor to ask about various issues concerning Spice Nepal, but the company did not respond to our inquiries.

Mahato returned to Nepal in the early 2000s. In 2003, he became the founding president of the Non-Resident Nepali Association, a global network of the Nepali diaspora. 

Mahato went into partnership in Spice Nepal with Raj Bahadur Singh, the son-in-law of former king Gyanendra. At this point, Spice Nepal reportedly had no significant assets except a telecoms licence.

Spice Nepal needed foreign investors to provide capital and expertise. This is where Visor came in. Karibzhanov told Inbusiness that he was introduced to Mahato by a Russian friend from Moscow. Mahato asked him to invest in Spice Nepal. 

Visor sent a team to Nepal in 2005 and Spice Nepal was transformed. By the end of 2008, the company had acquired 1.8 million customers and was making net sales of more than $20 million a year, according to official figures.

By 2008, Spice Nepal was large enough to attract an investment proposition from Sweden’s TeliaSonera, now just Telia.

Mahato sold the last of his Ncell shares in 2012. 

Questions regarding how much profit Mahato made from one of Nepal’s most successful companies, and whether he paid enough tax on this profit, remain unanswered.

Read further: The Ncell shell game: Did foreign firms fund Nepali investors’ giant profits?

This story is a collaboration between the Centre for Investigative Journalism-Nepal and Finance Uncovered, a UK-based journalism organization. 

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