Capital market must be bolstered for growth
Capital market plays a crucial role in mobilizing financial resources for economic development of the country. However, the Nepali capital market has been suffering since the budget presentation by the Maoist-led government for the current fiscal year which laid down a discouraging policy for the capital market. After the formation of the new government, investors have been encouraged and are expecting a conducive policy for investment. However, the capital market has not improved due to apathy of the government. In order to improve and modernise capital, the next budget should focus on the following areas:
• The budget should show the new government’s commitment to market economy and capital market development.
• High capital gains tax of 15 per cent in the context of developing capital market should be reduced to the previous level of 10 per cent. A clear cut tax policy should be adopted for short-term and long-term trading. The 10 per cent rate should be for short-term trading (within a year) of shares while such tax should be not be levied on long-term trading after a year. However, in the context of low infrastructural development for collecting such tax, a transaction tax is suggested to replace this tax.
• To enhance the bond market, different levels of income tax (five per cent for individuals and 15 per cent for institutions), should be introduced.
• To make the market competitive and reliable, open entry/exit policy
for brokers should be adopted slowly, based on Nepse’s technical and Securities Board of Nepal (Sebon) supervisory capacity. Similarly, foreign investment and technology in brokerage industry should be allowed.
• Clearing and Central Depository System (CCDS) should be set up with major participation from Nepse and its listed companies to address forgery problems and delay in ownership transfer as well as clearing.
• As the derivative market is also a must to develop the capital market,
a policy should be adopted to start such a market. In this connection, rights renouncing (selling the right of the share in the stock market), would be a good beginning.
• As under the de-mutualisation concept Nepse has already been converted into a profit seeking organisation, a policy should be adopted to allow Nespe to go into privatisation with corporatisation to make it fully modern and efficient. Sebon should be made reform-oriented with structural changes.
• A reform package of fiscal, monetary and other measures such as tax, interest rate on credit and other incentives is
necessary to encourage real sector companies in the stock market.
• Strong legal provisions should be made for
the development of mutual fund which is a must to attract small investors in the market.
• A policy to set up credit rating agency should be adopted for the grading of listed companies and financial products.
• To reduce the
influence of adverse
publicity and disinformation, a policy should
be made to bring institutional investors and market makers/dealers into the market.
• To expand the secondary market from the valley-based trading share trading should be upgarded to internet trading.
• The capacity of Securities Board, Nepse and
brokers should be upgraded for the cross-border transaction. They should build their capacity
anmd encourage the companies to be listed in the SAFE index.
• There are a couple of commodaties and metal exchanges in the country which has no regulator, there must be a regulatory authority to monitor and regulate them.
Karki is former general manager of Nepal Stock Exchange