In its budget for the current fiscal year, the government had increased the capital gains tax from 10 percent to 15 percent on earnings from shares owned by individuals. [break]
Capital gains tax is levied on profits realized on the sale of non-inventory assets that were purchased at lower prices.
According to a source at the Ministry of Finance, capital gains tax revenue nosed-dived to Rs 347.39 million during the first four months of the current fiscal year as compared to Rs 434.65 million for the same period last fiscal year.
Collection of capital gains tax began to decline since the last two months. During a one-month period from mid-November to mid-December the government raised Rs 73.32, which is 44.06 percent down from the amount collected in the same period last year.
The revenue slid during the period mid-December to mid-January by 68.53 percent from the Rs 189.33 million recorded during the same one-month period last year.
Share analysts and investors have blamed the shrinking revenue from capital gains tax on the government’s decision to impose the tax on profits for individual share investors.
“It is the result of the government’s untimely decision to raise the tax when the market was on a bullish trend. The government should have analyzed the likely impact before jumping into the decision,” Nawaraj Pokhrel, former president of the Stock Brokers Association, told myrepublica.com.
Following the increment in the capital gains tax rate and subsequent controversial statements about the capital market made by the finance minister, share prices dropped sharply, pushing down transactions at the Nepal Stock Exchange—the sole secondary market in the country—to a depressing level of late.
The NEPSE index, a barometer of share market trends which had reached a peak of more than 1,175 points in September, plummeted to 625.79 points on Wednesday.
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