CDS and Clearing Limited (CDSCL) has so far received modules that link its IT system with that of banks, stock exchange and stockbrokers, according to Subodh Sharma Sigdel, CEO of the company. [break]
“Once we receive the CDS module we will be technically capable of providing automated service on trading, clearing and settlement of securities,” Sigdel told Republica.
CDS and Clearing Limited has long been talking about launching electronic trading, clearing and settlement of securities. However, it has so far not been able to take the system live. One of the reasons for this was confusion over ways to calculate capital gains tax (CGT) once electronic service is launched.
The government currently charges capital gains tax of five percent and 10 percent on retail and institutional investors, respectively, on the shares sold in profit. The tax is calculated by first subtracting price at which shares were bought and commissions slapped during the time of sales and purchase of shares from the amount at which shares were sold. Ten percent of this amount is CGT.
But once the entire task of trading, clearing and settlement of securities was automated the charges slapped by depository participants (DPs) -- intermediaries that maintain accounts of securities investors and provide services such as transfer of securities -- also had to be deducted, prior to slapping the capital gains tax. And this was where the problem lied.
As per the previous regulation, DPs were entitled to collect 0.25 percent of the total trading amount of securities or a minimum of Rs 20.
“Since DPs´ job is not to keep track of securities trading amount, it was impossible to derive DP commission and ultimately exact capital gains tax,” Sigdel said.
After this problem was explained to the Securities Board of Nepal (Sebon), the securities market regulator made changes to its regulation allowing DPs to slap a fee of Rs 25 on per transfer of securities. This generally means securities of the same company that are bought by same investor and sold by same broker at different hours of the same day will be entitled to a fee of Rs 25.
“With the introduction of this provision, we can now derive the exact capital gains tax that investors have to pay,” Sigdel said, adding, “We have already informed about this development to Indian software developer.”
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