Government collects Rs 2.57 billion in capital gains tax from share transactions amid market decline

KATHMANDU: The government collected Rs 2.57 billion in capital gains tax (CGT) from share transactions between mid-August and mid-September, despite a significant downturn in the secondary market. The Nepal Stock Exchange (NEPSE) index dropped by 11 percent, losing over 300 points during this period, yet tax revenue from share transactions remained substantial.

Stockbrokers attributed this collection to investors selling their shares to book profits following an abnormal surge in share prices in prior months. However, the CGT collected during this period was 39 percent lower than the Rs 4.23 billion collected in the previous month between mid-July and mid-August.

Following a month-long bullish trend, the share market experienced a bearish phase during the review period, with NEPSE falling from over 3,000 points to 2,688.53 points.

Breakdown of CGT Collection

According to CDS and Clearing Limited, of the Rs 2.57 billion collected in CGT during the review month, Rs 733.9 million came from long-term investors who held shares for over a year. Meanwhile, Rs 1.53 billion was collected from short-term investors.

Individual investors are subject to a CGT of 5 percent or 7.5 percent depending on how long they hold shares before selling. Investors who sell shares within one year are considered short-term and are liable to a 7.5 percent CGT, while those who hold shares for over a year pay a 5 percent tax. Institutional investors face a 10 percent tax on their capital gains.

The CGT collected is directly linked to market capitalization, which measures the total value of companies listed in the secondary market. By mid-September, the market capitalization stood at Rs 4.2749 trillion, a drop of Rs 49 billion from the previous month.

First Two Months of the Fiscal Year: Investor Earnings and CGT Collection

Despite the drop in share values last month, investors earned a cumulative Rs 609 billion from share trading in the first two months of the current fiscal year. As of July 15, 2024, the last day of the previous fiscal year, NEPSE recorded a market capitalization of Rs 3.666 trillion. In total, the government collected Rs 6.814 billion in CGT in the first two months of this fiscal year.

NEPSE Issues Investor Caution Amid Market Manipulation Concerns

NEPSE has cautioned investors to carefully assess risks before investing in the secondary market. In a public notice issued on Monday, NEPSE urged investors not to rely solely on the advice of self-proclaimed stock analysts or discussions on social media platforms such as Facebook, Twitter, and Clubhouse.

“These sources may expose investors to higher risks. Investors should evaluate the market themselves before making decisions,” the notice read.

This warning comes amid suspicions that major investors might be involved in unethical practices aimed at manipulating share prices for undue gains. NEPSE, as the market’s frontline regulator, has called on investors to take precautionary measures.