KATHMANDU, Sept 26: The government has been advised to implement reforms in capital gains tax and review the ceiling on margin loans to strengthen the performance of Nepal’s secondary market.
Following the market crash on the first trading day after the Gen Z movement of September 8-9, Finance Minister Rameshore Khanal formed a four-member task force to recommend systemic and procedural reforms aimed at restoring investor confidence. The panel is coordinated by Rupesh KC, acting executive director of the Securities Board of Nepal (SEBON); Sharan Adhikari, director at Nepal Rastra Bank; Niranjan Phuyal, acting executive director of Nepal Stock Exchange (NEPSE); and Sharad Niraula, under-secretary at the Ministry of Finance (MoF).
Submitting its report on Thursday, the panel proposed over three dozen measures, including 15 short-term, 15 medium-term, and seven long-term recommendations. Key suggestions include annuling the threshold on loans against shares, extending deadlines for interest payments on margin loans, and reviewing capital gains tax provisions.
For short-term measures, the panel recommended treating capital gains tax on non-commercial share sales as the final tax liability for investors and simplifying tax clearance certificates. It also suggested removing the Rs 250 million ceiling on individual margin loans and extending the deadline for interest payment by three months from mid-October. Additional recommendations include immediate implementation of margin lending through stock brokers, developing the NEPSE index as a benchmark for the All Equity Index and Free Float Shares, allowing investors to open more than two demat accounts, establishing mechanisms to address investor grievances, and ensuring timely settlement of liabilities by brokers.
Medium-term measures, to be implemented within one year, include restructuring NEPSE, developing a separate exchange mechanism for small and medium-cap companies, and regulating pre-IPOs, including capital collection processes for public limited companies. The panel also recommended policy clarity on non-resident Nepali investments in foreign currencies, operationalizing the settlement guarantee fund and auction market, effective implementation of the book-building mechanism, setting standards for issuing primary and rights shares, and licensing subsidiaries of insurance companies to operate as stock traders.
For long-term measures beyond one year, the panel suggested introducing separate laws for stock exchange operations and regulation. The report also called for new investment tools, including intraday trading, short selling, equity derivatives, securities lending and borrowing, and provisions to strengthen the bond market.