The government has been advised to undertake major reforms in capital gains tax (CGT) and margin loan provisions in a bid to stabilize Nepal’s secondary market and restore investor confidence after the recent crash.
Following the stock market slump on the first trading day after the Gen-Z protests of September 8–9, Finance Minister Rameshore Khanal formed a four-member task force to recommend systemic and procedural reforms. The panel was coordinated by Rupesh KC, acting executive director of the Securities Board of Nepal (SEBON), with members Sharan Adhikari from Nepal Rastra Bank (NRB), Niranjan Phuyal from the Nepal Stock Exchange (NEPSE), and Sharad Niraula from the Ministry of Finance (MoF).
Over Three Dozen Recommendations
Submitting its report on Thursday, the panel proposed more than three dozen measures:
- 15 short-term actions,
- 15 medium-term reforms, and
- 7 long-term initiatives.
At the core of the recommendations are measures to remove distortions in CGT, annul the ceiling on loans against shares, and provide flexibility on margin loan repayments.
Short-Term Measures
For immediate impact, the task force suggested:
- Treating CGT on non-commercial share sales as the final tax liability, removing additional procedural burdens.
- Simplifying tax clearance certificates for investors.
- Removing the Rs 250 million ceiling on individual margin loans.
- Extending the deadline for interest payments on margin loans by three months from mid-October.
- Allowing stock brokers to provide margin lending facilities.
- Using the NEPSE index as the benchmark for the All Equity Index and Free Float Shares.
- Permitting investors to open more than two demat accounts.
- Establishing mechanisms to address investor grievances.
- Ensuring timely settlement of liabilities by stockbrokers.
Medium-Term Measures
Within a year, the panel recommended:
- Restructuring NEPSE and developing a separate exchange mechanism for small- and medium-cap companies.
- Bringing clarity to policies on non-resident Nepali (NRN) investments in foreign currencies.
- Regulating pre-IPO processes and capital collection by public limited companies.
- Operationalizing the settlement guarantee fund and auction market.
- Implementing the book-building mechanism effectively.
- Setting clear standards for issuing primary shares and rights issues.
- Licensing insurance company subsidiaries to operate as stock traders.
Long-Term Measures
For reforms beyond one year, the panel proposed:
- Enacting separate laws for stock exchange operations and regulatory frameworks.
- Introducing new investment tools, including intraday trading, short selling, equity derivatives, securities lending and borrowing, and initiatives to strengthen the bond market.
Road Ahead
Finance Minister Khanal has indicated that the recommendations will be reviewed and implemented in phases. Market observers believe the short-term measures, especially in taxation and margin lending, could provide immediate relief to investors, while the structural reforms will help modernize Nepal’s capital market in the long run.
