What do the stakeholders in the stock market have to say about the budget?

ShareSansar, July 14:

The key stakeholders in the stock market have by and large welcomed the budget for the fiscal year 2071/72 announced by the government yesterday, though it did not meet some of their expectation.

“The best thing about this budget is that the government has taken ownership and pride in the growth of the stock market through the budget speech,” says Ambika Prasad Paudel of Hathway Investment Nepal Limited, a noted institutional investor.
“The previous governments had not either discouraged the market or remained largely mute.”

He added that though the budget did not announce expected policies such as one that encourages real sector in the stock market, replaces the capital gain tax with transaction tax and provides some tax exemption to the unit holders of mutual fund, the budget has laid emphasis on promotion of the investment of Non-Resident Nepalese (NRNs) in the stock market and full automation of stock trading.

“Do not forget that exclusion of some policies we were expecting does not mean that the government is not committed to promote the stock market. The budget announcement shows that the government, and the finance minister in particular is committed to see the market grows in days to come.”

President of Nepal Stock Brokers’ Association Narendra Sijapati echoes Paudel’s optimism.

He said that as compared to the annual budgets of the last few years, this budget has given emphasis to the growth of the stock market, which is a strong indication that the government is committed to see its growth.

“In his budget speech, the finance minister has counted the breaching of 1,000 level of Nepse as an achievement of the government, and went on to announce legal amendment to create environment to promote the investment of the Non-resident Nepalese invest in the stock market. These are encouraging signals,” Sijapati said.

“Once we ensure direct investment of NRNs in the stock market, the market will grow significantly,” he said. “Moreover, the policies to open up the areas of investment in the country will go a long way to promote the stock market. All in all, this budget brings lots of hopes and confidence to the market.”

He, however, doubted the capability of the authorities concerned to follow on and execute the programs and policies of the government announced through the budget to promote the stock market.

“The budget has time and again called for full automation of share trading, but this has not been possible so far due to the weaknesses on the part of Nepse. The delay in implementation of CDS is another example of lackluster performance of the implementing agencies rather than the government,” Sijapati charged.

But the good thing is that the government, too, seems to have felt the need to reform Nepese. The budget has laid emphasis on bringing strategic national or foreign partner to enhance its capacity.

Capital gain tax retained: No problem

For some reason, the government has decided not to introduce transaction tax by replacing the existing capital gain tax to facilitate share trading.

Though the regulator, Nepse and other stakeholders had tried hard to push for the reform, the government was not entire convinced about the move, according to Finance Ministry sources.

Securities Board of Nepal (SEBON) had 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, would have brought down the cost of investment for the investors,” NEPSE spokesman Niraj Giri. “Moreover, the capital gain tax should have been revoked also because it is not easy for the record keeping point of view.”

Nonetheless, stock brokers and investors are not much concerned about the government’s decision not to replace the capital gain tax, and the market is bullish and the trade volume is ever increasing.

“Though the budget did not include the provision to replace capital gain tax with transaction tax, the fact that the government has expressed commitment to promote the stock market is enough to help the market grow,” says Sijapati.

Chief Executive Officer of Siddhartha Capital Limited Dhurba Timilsina, however, says that despite all the promises that the budget makes for overall development of the country, especially in the infrastructure sector, it has somewhat failed to pay due attention to promotion of the capital market.

“For instance, exemption of some tax for the investors in the mutual fund would have encouraged investment in such schemes,” he explains. “It is a global practice to give certain amount of tax exemption to mutual fund unit holders. The idea behind is to promote mutual fund, which not only provides depth to the capital market, but also helps in sustainability of development projects.”

“Capital market is a major source of funding for any big infrastructure or other development projects in any country around the world,” he adds. “But this budget speaks of promoting development projects on one hand, and does not bring program to promote the mutual fund on the other. It does not add up.”

He, nonetheless, hoped that the government would come up with policy and programs to promote participation of the common people in mutual funds in days to come.

The stakeholders, including SEBON itself, had been urging the government 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.

“Though the budget did not entirely met all our expectations, it has given the strongest signal till date that the government is committed to promote the capital market, especially the stock market,” says Chairperson of Nepal Investors Forum Raj Kumar Tilimsina.

“Also do not forget that the budget has clearly stated that it is going to address the legal hurdles to promote the investment of NRNs in the stock market. This alone is enough for substantial rise of the market,” he adds.

Policies to promote growth and merger of insurance companies, opening reinsurance company, strategic partnership for Agricultural Development Bank Limited and similar policy for Nepal Bank Limited – two huge state-run banks are other policies that are favorable to the market.