Budget likely to replace capital gain tax with transaction tax [Exclusive]
ShareSansar, May 28:
The budget for the new fiscal year is likely to announce securities transaction tax based on traded amount instead of the existing capital gain tax to spur the stock market by bringing down the cost of investment, according to sources privy of the development.
“The government is very positive about introducing transaction tax by replacing the existing capital gain tax to facilitate share trading. We are expecting to announce this through the upcoming budget,” a senior official with the Ministry of Finance told ShareSansar today, but could not give details as it is still being considered by the Revenue Consultative Committee under the ministry.
Niraj Giri, the Spokesperson of Securities Board of Nepal (SEBON), further informed that in the Revenue Consultative Committee, they have strongly urged for enforcement of “nominal” transaction tax based on the volume of transaction to replace the capital gain tax.
“Transaction tax, which is imposed on the basis of the amount traded, will bring down the cost of investment for the investors,” Giri told ShareSansar. “Moreover, the capital gain tax should be revoked also because it is not easy for the record keeping point of view.”
The Finance Ministry source further said that the upcoming budget being introduced by the pro-market government is also expected to the way to open direct investment of the Non-Resident Nepalis in the stock market.
The proposed Foreign Investment Policy, which will be tabled for parliamentary deliberation once the House session begins on May 30, also envisages letting NRNs directly invest in the stock market.
Good news for mutual funds
Meanwhile, SEBON Spokesperson Giri further said that the budget may also address the long-standing demand of the regulator as well as mutual fund operators to exempt up to Rs 50,000 of the annual taxable amount for the unit holders.
In other words, if you invest in a mutual fund scheme and get annual return as per which your annual taxable amount is Rs 1.5 lakh then up to Rs 50,000 would be tax-free.
“Since mutual fund is an important investment option for investors, especially the new comers, in the capital market, such a provision will spur the market,” said Chief Executive Officer of NMB Capital Limited, Shreejesh Ghimire.
Finance Ministry Spokesperson Ram Sharan Pudasaini only said that the budget is positive about facilitating share trading through various measures, especially in the face of excess liquidity in the capital market.
“Given the liquidity scenario, the government also wants to bring in foreign direct investor as well as NRNs,” Pudasaini said, adding that the ministry is gearing up to announce the budget by Jestha end (mid-June).
As of now a flat 5 percent capital gain tax is imposed for individual investor per transaction and 10 percent for institutional investors besides 0.7 to 1 percent broker commission.
Apart from that Securities Board of Nepal (SEBON) charges 0.015 percent per transaction.
If the securities transaction tax is imposed in case of the existing taxation system then the cost of fund will significantly come down.
Transaction tax: Practice in India
Securities Transaction Tax (STT) is a tax payable in India on the value of securities transacted through a recognized stock exchange.
The tax is not applicable on off-market transactions or on commodity or currency transactions.
The original tax rate was set at 0.125 percent for a delivery-based equity transaction and 0.025% on an intra-day transaction. The rate was set at 0.017 percent on all Futures and Options transactions.
STT was originally introduced in 2004 by the then Finance Minister, P. Chidambaram. The government reduced this tax in the 2013 budget after a lot of protests for years by the brokers and the trading community.
The revised STT for delivery-based equity trading is 0.1 percent on the turnover. For Futures, the tax has been reduced to 0.01% on the sell-side only. The rest of the tax structure remains as is. (Wikipedia)
