Low Investor Confidence Impacts Share Market Performance and CGT Collection

KATHMANDU: The government amassed Rs 4.85 billion in capital gains tax (CGT) from share trading between mid-July 2023 and mid-June 2024. According to CDS and Clearing Limited (CDSC), this revenue came from secondary market trading during a period marked by low investor confidence.

The highest monthly collection was Rs 972 million between mid-January and mid-February, while the lowest was Rs 84.15 million between mid-October and mid-November. Despite overall sluggish market performance, recent months have shown improvement due to Nepal Rastra Bank’s flexible margin lending policies.

By mid-February, the CGT collection was Rs 2.86 billion, with an additional Rs 1.99 billion collected in the following four months. Individual investors pay CGT at 5% or 7.5%, depending on how long they hold the shares, whereas institutional investors are subject to a 10% tax.

The CGT collection peaked at Rs 14.13 billion during FY 2020/21 but has since declined, reaching Rs 2.97 billion in FY 2022/23. Market capitalization, which affects CGT collection, increased from Rs 3.082 trillion in mid-July 2023 to Rs 3.322 trillion by the end of the review period.

Despite investor calls for lower CGT rates, a government task force has recommended increasing CGT to 10% for shares held under a year and 7.5% for longer holdings, aiming to boost government revenue.

High-Level Task Force Suggests CGT Increase

A high-level committee has advised the government to raise the CGT rate on share transactions, recommending a 10% CGT for stocks traded within a year and 7.5% for those held longer. This proposal comes amid investor demands for lower CGT rates, as the government seeks to enhance revenue generation.

The task force was formed by former Finance Minister Prakash Sharan Mahat in September 2023 to address tax system reforms and improve revenue collection.