Fall and rise

Published On: June 7, 2018 02:00 AM NPT By: Republica

Miscalculation on share market 

The government on Wednesday decided to withdraw its decision to impose a new formula to calculate capital gains accrued on the sale of rights and bonus shares until the end of the current fiscal year. Following the government decision, stock investors withdrew their protest to not participate in stock trading against the new revision of the calculating capital gain on rights and bonus shares. Earlier on Wednesday, the stock market trading had come to a complete halt as agitated investors remained off the trading floor while stock brokerage firms tacitly supported their protest. The exuberance of investors over the rollback of the decision was evident in the stock market that opened immediately after the agreement between investor groups and government officials at the Ministry of Finance to follow the earlier formula on computing capital gains on rights and bonus shares. Nepse benchmark index jumped to 13.9 points, or 1.1 percent, on the account of the government’s readiness to ‘put on hold’ the new formula until the end of this current fiscal year. After mid-July, the government will follow the recommendation of a task force it has formed to address the issue on capital gains tax (CGT).

The government’s flip-flop over the issue of CGT calculation on rights and bonus shows two major shortcomings. First, the government is desperate to shore up its revenue and it did not think through the ramifications of the CGT revision on rights and bonus shares in the stock market. Forming a task force to recommend what needs to be done to resolve the CGT issue on Wednesday would have given credence to an argument of investors that the decision to revise the capital gains was largely based on whims of tax authorities. Second, the KP Oli-led government has not sent a clear message to investors on how the ‘socialism-oriented’ government perceives the stock market. Some of proposed initiatives in the budget to bring more private companies into the stock market demonstrate that it wants to develop the secondary market. However, recent remarks by Finance Minister Yuba Raj Khatiwada followed by the decision to raise the CGT to 7.5 percent and the latest CGT calculation fiasco are destabilizing the bourse.

While the decision to not go ahead with the new formula is a welcome step to alleviate investors’ fear to pay ‘unjust’ tax, the government should refrain from rolling out haphazard rules without proper research and consultation. The investors should be ready to pay their fair share in taxes. In this case of new CGT formula, they were right to be agitated. But the measure they resorted to protest the government decision is absurd. A stock market is a platform for investors to either sell or buy their assets (securities) and provide liquidity. Denying the opportunity for trading even for a day does not bode well for the credibility of the market itself. As the government plans to resolve the issue based on the recommendations of the task force, it should make sure that all stakeholders, including the investors, are consulted before big changes are introduced. 

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