KATHMANDU: The Government of Nepal is set to unveil the federal budget for the fiscal year 2025/26 today (Thursday).
Finance Minister Bishnu Prasad Paudel—widely known as “Bishnu Bull” among share market investors—is expected to present the budget, raising hopes and concerns in the capital market.
Paudel, who had previously earned investor confidence for his role in market rallies, saw the NEPSE index surpass 3,200 points during his first term as finance minister. In his second term, daily market turnover had crossed Rs 30 billion, setting new records. Investors, therefore, are looking forward to his budget with cautious optimism.
However, speculation about a possible hike in capital gains tax (CGT) has created anxiety among investors and market participants.
Currently, individual investors pay a 5% CGT on shares held for more than one year, and 7.5% on shares sold within a year. There are rumors that these rates might be increased in the upcoming budget.
The legal status of CGT as the “final tax” remains unclear. During the tenure of former finance minister Dr. Prakash Sharan Mahat, a provision in the 2023/24 financial bill allowed taxpayers to declare securities, land, and property transactions from fiscal years 2012/13 to 2019/20, with only 50% of the applicable tax due if filed by the end of Chaitra 2080. This was seen as controversial and triggered investor protests.
On June 4, 2023, a consensus was reached between investor groups and the Ministry of Finance to treat the current CGT as the final tax, but this agreement has not yet been legally formalized. Investors continue to urge the government to enshrine this decision in law through the budget announcement.
Market analyst Chhotelal Rauniyar believes the existing CGT rates of 5% and 7.5% are reasonable and should be maintained for a few more years.
“The current rates are acceptable,” Rauniyar said. “We need policy continuity to build investor confidence. Increasing the tax now would be premature.”
Rauniyar also criticized the government’s frequent targeting of the capital market for revenue generation, suggesting that a more strategic and long-term policy approach is necessary. He argued that CGT should be officially declared the final tax to eliminate confusion and reduce investor fears.
Rauniyar further recommended allowing banks to invest in the stock market to improve market liquidity. “If the market does well for a couple of years, a 10% CGT might be bearable,” he added.
Another analyst, Ambika Paudel, proposed that institutional investors should pay a 20% tax on income earned from share trading.
“Some suggest 25% or 30%, but I believe 20% is reasonable,” he said. “There could even be separate rates for short-term and long-term trades—say 15% and 20% respectively.”
Paudel highlighted the importance of recognizing CGT as a final tax to avoid policy uncertainty, which he said undermines investor confidence. He also urged reforms in the Securities Board of Nepal (SEBON) and restructuring of NEPSE from an investor-centric viewpoint.
Ghanashyam Pandey, Chairman of the Nepal Investors’ Association, called for implementation of policies to allow Non-Resident Nepalis (NRNs) to invest in the Nepali stock market.
“We should welcome NRNs into the market and open doors for foreign direct investment (FDI),” Pandey said. He also echoed the call to make CGT the final tax, even if the rate increases slightly.
According to Pandey, Nepal’s CGT is among the lowest in Asia, yet the country has not seen significant foreign investor participation, which he believes makes the current rate still relevant and suitable.
Rabin Kandel, General Secretary of the Nepal Stock Market Investors Association, expressed hope that the upcoming budget will allow banks to invest in the stock market.
“There is ample liquidity in the banking sector. Banks should be allowed to invest in the capital market, in line with open-market economic principles,” said Kandel.
He also strongly supported the notion that CGT should be treated as the final tax. “The budget should officially recognize the current CGT as the final tax. This was already agreed upon with investors,” Kandel added.
Comment