Finance Minister’s Misleading Announcement: Claims of Capital Gains Tax Being Final on Stock Transactions Are Incorrect
May 30, Kathmandu – Finance Minister Dr. Swarnim Wagle has caused confusion among stock investors by presenting conflicting provisions in the upcoming fiscal year’s budget and the Economic Bill 2083. Despite announcing in the budget speech that the capital gains tax on stock transactions would be final, the Economic Bill outlines different regulations. Minister Wagle’s claim that the capital gains tax is final ignores the existing Rs. 4 million threshold maintained in the Income Tax Act.
According to the bill, while capital gains tax is considered final for those earning less than Rs. 4 million in total income, individuals with income exceeding this limit who are required to file income returns are subject to provisions where the tax is not final. “This policy is not beneficial for those who have multiple professions and annual income exceeding Rs. 4 million,” said one investor. “Despite assurances that the tax will be final, the tax rate has increased by 2.5 percent, set at 10 percent for short-term gains and 7.5 percent for long-term gains. The legal framework about the finality of this tax is misleading investors.”
They added that this arrangement is only advantageous to investors who work solely in the stock market and have annual incomes below Rs. 4 million. “Most investors in the Nepalese stock market are part-timers,” the investor explained, “and the government appears to have based this policy assuming full-time investors earn more than Rs. 6 million, which is not accurate.” The Economic Act 2083 has increased the capital gains tax on listed securities transactions, raising it from 7.5 percent to 10 percent for short-term gains and 7.5 percent for long-term gains.
The tax will be collected by the Nepal Stock Exchange through an advance withholding system. Currently, those conducting transactions are required to file income statements for the withholding tax to be considered final. However, the provision under Section 97(1) of the Income Tax Act 2058, which previously stipulated penalties for non-filing, has been repealed. Consequently, individuals trading only in securities have no legal obligation to submit their income details, undermining the concept of a final tax deduction.
Although the amendment has not yet been implemented, existing regulations mandate that tax rates on income from securities trading, classified as non-business taxable assets, must not exceed 7.5 or 10 percent. Furthermore, the debate continues as to whether profits gained from securities trading should be treated as income from non-business or business assets. Chartered Accountant Umesh Pandey explained that even if the tax is considered final, there remains a risk that income from stock trading based on dividends and similar returns could be interpreted as derived from business or commercial inventories.