Year-on-year increase in CGT collection was 10-fold of the amount in the same period last year

KATHMANDU, Aug 25: The government collected capital gains tax (CGT) from the shares trading worth more than Rs 4.23 billion in the past one month, which surpassed the amount collected in the entire period of the last fiscal year.

According to the CDS and Clearing Limited, the surge in trade volume and market capitalization led to revenue collection of an exorbitant amount during mid-July and mid-August this year. In the entire period of FY 2023/24, the government generated revenue worth Rs 4.15 billion under the heading.

The year-on-year increase in the CGT was almost 10 fold in the first month of the current fiscal year compared to the same period of the last FY. During the same period of FY 2023/24, the revenue generated under the heading was just Rs 400.80 million.

Just in a short span of one month, the Nepal Stock Exchange index increased by an exorbitant mark of around 1,000 points. Likewise, the daily turnover amount has also jumped to more than Rs 29 billion from around Rs 2 billion.

The amount of the CGT collection depends on the market capitalization which measures an average shares value of companies listed in the secondary market. The market capitalization also escalated to Rs 4.765 trillion by mid-August, an increase from Rs 3.666 trillion as of July 15, the last day of FY 2023/24. This shows that the values of the share owned by the investors increased by more than Rs 1.099 trillion in the review month.

Individual investors are liable to pay CGT of 5 percent or 7.5 percent, depending on the duration that the investors hold shares before they take them for transactions. The individuals who sell the stocks they hold within one year from the purchase date are considered as short-term investors who are liable to pay CGT of 7.5 percent, while those who sell after one year are categorized as long-term investors who are subjected to 5 percent CGT. The institutional investors are liable to pay 10 percent tax on their capital gains. 

A high level committee formed to recommend timely reform in the tax system has advised the government to increase the CGT rate on individual shares transactions to 10 percent in order to generate more revenue collection. However, the government has not taken any steps in this regard so far.