Uncertainty Surrounds Whether Capital Gains Tax on Share Market Will Be Final; Budget Provisions Add to Confusion
The government has set the short-term capital gains tax on share trading at 10 percent and the long-term tax at 7.5 percent in the upcoming fiscal year’s budget. However, investor uncertainty over whether this capital gains tax will be treated as a final tax has caused market volatility. The Inland Revenue Department and tax experts have clarified that the capital gains tax applied to share trading is a final tax, and no additional tax will be imposed.
As of Jestha 20, 2079 (June 3, 2022), Kathmandu – The provisions regarding capital gains tax introduced in the government budget for the upcoming fiscal year are currently under discussion. The government announced an increase in capital gains tax rates by 2.5 percent and stated that this tax will be final. Yet, because the finality of the capital gains tax was not explicitly outlined in the Economic Bill, many investors remain uncertain.
Finance Minister Dr. Swarnim Wagle had clearly announced the tax increase and its finality during his budget speech; however, reports indicate that similar clarity is lacking in the Economic Bill. Prior to the budget, share investors had recommended to the minister that while increasing the capital gains tax, it should be declared final to avoid confusion. The minister publicly confirmed that the capital gains tax is indeed final. Despite this, dissatisfaction remains as the Economic Bill does not explicitly declare all capital gains taxes as final. This ambiguity led to fluctuations in the securities market index, which dropped by 26 points on the first day following the budget announcement (Monday) and then rose by 22 points on Tuesday.
The government amended the Income Tax Act via the Economic Bill, setting the capital gains tax rate at 10 percent for short-term holdings and 7.5 percent for long-term holdings, up from the previous 7.5 percent and 5 percent respectively. Shares held up to one year are subject to short-term tax, while those held longer incur long-term tax. Chartered Accountant Umesh Raj Pandey explained that once capital gains tax on share sales is paid, no further taxes apply. “There is no practice of imposing additional tax on income already subjected to capital gains tax,” he said. “In Nepal’s context, capital gains tax on income has not been taxed further historically. This practice is longstanding, and the designation of ‘final tax’ generally does not change the situation.”
