Government collects record revenue of NPR 4.55 nillion from stock market in July

KATHMANDU: The Government of Nepal generated approximately NPR 4.55 billion in revenue from the stock market in July, setting a new record for the highest revenue collected from this sector in the month of July. This significant increase in revenue is attributed to the rise in stock transactions, as reflected in the NEPSE index, which led to the government receiving an unprecedented amount of revenue from the stock market.

In July alone, investors paid around NPR 4.23 billion in capital gains tax. Additionally, NPR 315.2 million was collected in advance tax deductions during the same period. The combined revenue from capital gains tax and advance tax deductions contributed to the total collection of NPR 4.55 billion from the stock market, as reported by CDS and Clearing.

Capital gains tax (CGT) is the amount that individual and institutional investors must pay to the government when they make a profit from stock transactions. Even if the value of stocks increases, the tax is only applicable when investors sell their shares and realize a profit. This tax is known as capital gains tax.

Similarly, stock brokers are required to pay a 15% advance tax deduction (TDS) on the fees they earn from stock trading. By combining these taxes, the government collected NPR 4.55 billion from the stock market in July alone.

Under the current legal provisions, investors are required to pay capital gains tax ranging from 5% to 10% on profits made from stock transactions. Mutual funds, however, are exempt from paying this tax. Individual investors who sell shares after holding them for more than a year (365 days) must pay 5% of their profits as capital gains tax, while those who sell within a year must pay 7.5%. Institutional investors are required to pay 10% of their profits as capital gains tax. The majority of stock transactions involve individual investors, with only a small number of institutional investors.

According to CDS and Clearing, in July of the fiscal year 2080/81, the government collected NPR 408 million in capital gains tax, NPR 426 million in the fiscal year 2079/80, and NPR 3.24 billion in the fiscal year 2078/79. Additionally, NPR 52.2 million, NPR 62.9 million, and NPR 229.7 million were collected in advance tax deductions during the same periods, respectively.

The stock market had been declining in the previous two years, leading to lower transaction volumes and investor losses, which resulted in reduced government revenue from this sector. However, since the beginning of this year, the market has been on an upward trajectory, with transaction volumes significantly increasing. This has led to a corresponding increase in government revenue, according to the Nepal Stock Exchange (NEPSE).

As of last Friday, 6.37 million investors had opened demat accounts for stock trading, representing about 22% of Nepal’s total population. By the end of July, 3.85 million investors had opened accounts for secondary market transactions, with 2.33 million conducting trades online and 1.52 million continuing to trade through brokers (offline), according to NEPSE. Of the total investors in the secondary market, 3.84 million are individual investors, while the remaining 8,754 are institutional investors.

Despite the stock market showing signs of growth from the end of May, the NEPSE index only gained momentum after the government formation was secured through a coalition between the Nepali Congress and CPN-UML. The NEPSE index was around 2,053 points on June 30, the day the two parties signed a cooperation agreement, and has since increased by over 900 points. As of last Thursday, the NEPSE index closed at 2,974 points, with transaction volumes also showing significant growth.

“The current loose monetary policy has greatly supported the upward momentum of the market,” said a stockbroker. “Positive sentiment from the Finance Minister, loose monetary policy, low interest rates, and high liquidity are the main factors driving the stock market upwards.”

Despite the recent growth in the stock market, the regulatory body, the Nepal Securities Board, has been without a chairman since January 4. The absence of a chairman has hindered effective regulation of the stock market, leading to increased manipulation. This has resulted in the share prices of companies with poor financial conditions rising abnormally. Experts suggest that the regulatory body, the government, and other relevant authorities should pay attention to this issue.