Kathmandu, May 26

The government is planning to increase the capital gains tax (CGT) on share transactions from the next fiscal year citing the need to usher in stability in the share market.

“Since a few months, investors are getting attracted to short-term gains in the share market, thus we need to increase CGT on share transactions so that there is stability in the market,” said a high-ranking official from the Ministry of Finance, seeking anonymity.

“The CGT rate needs to be addressed through the budget.”

According to the source, the Securities Board of Nepal — regulatory body of the country’s capital and commodities market — has forward a suggestion to the Finance Ministry to increase the CGT to 15 per cent for short-term investors and 10 per cent for long-term investors.

The government has classified investors who hold on to shares for three years and more as long-term investors.

The budget for the current fiscal year had increased the rate of capital gains tax for some investors. In case of gains made from sale of listed shares a resident natural person is liable to pay 7.5 per cent, a resident entity is liable to pay 10 per cent and others are liable to pay 25 per cent as CGT. Previously, the tax rate was five per cent for resident individuals and 10 per cent each for resident entities and others.

Similarly, for gains made from sale of non-listed shares, a resident natural person is liable to pay 10 per cent, a resident entity is liable to pay 15 per cent and others are liable to pay 25 per cent as capital gains tax.

Previously, the tax rate was 10 per cent for resident individuals and 15 per cent each for resident entities and others.

“The proposed increment in capital gains tax is likely to not only demoralise investors but also keep away new investors from the market. Such decisions made by the government will only add to the instability that the market has been witnessing in recent years,” said Uttam Aryal, chairman of Investors Association of Nepal.

“At present, due to the fear among investors that the government will increase and implement the new system of calculating the capital gains tax in secondary market through the upcoming budget, the Nepal Stock Exchange index has been falling,” Aryal added.

However, the Inland Revenue Department has already issued a circular on June 1 stating that the method in which the capital gains tax is calculated will be revised.