Wednesday, June 6, 2018

Trading resumes after government rolls back decision to hike CGT threshold

Nepal Stock Exchange (Nepse) resumed trading – in the second half of the trading session today – after the government rolled back its earlier decision to revise the method of calculating capital gains tax (CGT) on trading of bonus and rights shares for two weeks.
The investors withdrew their protest against the new CGT calculation method enforced by the Inland Revenue Department (IRD), according to the investors. "The protest was called off following the government's decision to put the new calculation method on hold for the time being," they said. "According to the new calculation method, CGT on selling bonus and right shares has to be calculated with face value as the base rate."
"The new decision – announced in the budget for the next fiscal year 2018-19 – is irrational decision, which can never be implemented because investors will not pay capital gains tax when there is no capital gain," according to Nepal Investors Forum.
Earlier, the government used to charge 5 per cent CGT on trading bonus and rights shares in the secondary market. With the increase in the CGT to 7.5 per cent through the federal budget 2018-19 on May 29, the tax administration had also changed the CGT calculation method. Prior to the enforcement of the new rule, CGT used to be levied on the income made from the difference in actual price of shares traded and adjusted base price of stocks. Adjusted base price of the stock means the price of stock immediately before book closure plus the value of shares received from rights and bonus divided by the number of shares.
The investors had been protesting against the IRD circular that imposed CGT on difference between the actual price of shares traded and base price of bonus and rights shares that is Rs 100 per unit share.
The share market has witnessed a large sell off on Sunday as soon as the IRD issued the circular levying 7.5 per cent CGT on the difference of actual price of share traded and its base price. On Monday, the investors hold discussion with the government asking the government o take back the circular.
But their discussion ended inconclusively forcing the investors to not to do any transaction yesterday, though the market was open for trading. Yesterday, the ministry has also formed a committee led by joint secretary at the Economic Policy Analysis Division Uttar Kumar Khatri to examine the revision in CGT calculation and suggest a solution.
Yesterday witnessed not a single transaction in the share market – for the second time in two years – in a year after VAT on brokers' commission row, which has been eliminated by the budget.
The protest continued today as well and the investors did not do any transaction during the first half of the trading hours.
The benchmark Nepse index ended 13.91 points higher to close at 1,282.75 points even in the second half – one-and-a-half hour transaction – recording turnover of Rs 238 million.
However, the investors are still under pressure as they do not know what will happen after 15 days. The seven-member task force led by Khatri – including representatives from the IRD, Department of Revenue Investigation, Securities Board of Nepal, Nepse and CDS and Clearing, and a capital market expert as members – will submit a report in 15 days. "Based on the study report, the ministry will plan the next move from the next fiscal year,” Khatri added. "After mid-July, the government will decide a formula based on the recommendations of a task force."

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