EDITORIAL: Bearish move

Stock trading halt should serve as a lesson to govt to take stock of all aspects before imposing new rules for the secondary market

Ever since the left alliance came to power with the thumping victory in February following the parliamentary elections in December last year, the country’s only secondary share market has dropped to the lowest point. Confidence of the secondary share market saw a further downward trend, mainly because of Finance Minister Yubaraj Khatiwada’s anti-share market statements as soon as he assumed office. The investors had expected modest revival of share market after the presentation of the budget speech in federal Parliament on May 29. But their hopes of getting it back to normal were dashed after the Inland Revenue Department (IRD) issued a new circular changing the method of calculating Capital Gains Tax (CGT) and hiking CGT to 7.5 per cent from the previous five per cent on June 3. However, the IRD rolled back its decision yesterday after Nepal Stock Exchange (NEPSE) shut down its transaction on Tuesday protesting the new rules. It was IRD’s premature decision without consulting the stakeholders about its fallout.

The investors in the secondary share market were particularly miffed at the IRD’s new method of calculating CGT on the base price of capital market. The investors were in agitation protesting the IRD’s new circular, which, they say, was against international practice. NEPSE saw zero trading on Tuesday. Ambika Prasad Poudel, chairman of Nepal Investors Forum, said they halted the trading at the behest of the investors against the new formula. The IRD decided to fix Rs 100 as the base price of per unit of bonus and rights share and enforce 7.5 per cent tax on the difference of actual price of the shares traded on the base price. Earlier, the CGT used to be enforced on the income made from the difference in actual price of share traded and adjusted base price of stocks. Share investors argue that if the government wants to impose tax on gains made by investors as per the new formula, then it should provide compensations to investors for the loss they have to face during transactions.

Earlier, the government used to enforce five per cent CGT on the trade of bonus and rights share in the secondary market. Along with the increase in the CGT to 7.5 per cent through the federal budget, the tax administration had also changed the CGT calculation method. Traders had to pay tax only on the profit earned from trading of bonus and rights shares. But the new provision, now shelved until further notice, compels share traders to file CGT even if they lose money in face value. In response to the protest, government has formed a panel, led by Joint Secretary Uttar Kumar Khatri, which will submit its report within two weeks. However, the IRD’s decision to roll it back until the end of this fiscal is a welcome move. This is the first time that NEPSE was shut down due to IRD’s immature decision. The government should have consulted the stakeholders before taking any decision like this which will be detrimental to the country’s economy. Such a move will surely send negative message at international level. Foreign investors will give a second thought before investing in the country if policy inconsistency rules the roost.

Politics and water

In a democracy, everyone has the right to have their own beliefs, including political beliefs. Since the restoration of democracy in 1990, we too have been practising multi-party system where there are different political parties who have their own supporters. People may hold different political views but these beliefs should not be a source of conflict. But what has been seen in Rumdi, a far-flung village in Himali Rural Municipality, of Bajura does not look good, as water has been mixed with politics.

According to reports, there are two separate water spouts for the supporters of the Nepal Communist Party and the Nepali Congress. Discord between the supporters of the two parties is such that they don’t use water “from other party’s spout”. The water spouts were built during local level polls. But there is conflict over water use even today. Himali Rural Municipality Chair Govinda Bahadur Malla said his efforts to convince locals to end the conflict over water on the basis of ideological beliefs have gone in vain. Such polarisation – that too over using drinking water spouts – does not bode well for any society. Stakeholders must resolve the issue at the earliest.