‘CGT should be calculated on Weighted Average Price’, suggests SEBON, NEPSE and CDSC

Securities Board of Nepal (SEBON), Nepal Stock Exchange (NEPSE) and CDS and Clearing Centre have suggested the government to calculate the Capital Gain Tax as per Weighted Average Method.

The three regulatory bodies have provided suggestion to the study committee formed by the Ministry of Finance. After the controversy regarding the calculation of capital gain had peaked, the bodies have provided suggestion to the government.

As per the weighted average system, the base price of the right share and bonus share is added to the purchase price of the share. Then the sum is divided by the total unit of shares. The outcome price is known as ‘Weighted Average Price’. The regulatory bodies have suggested the government to calculate the Capital Gain Tax on the Weighted Average Price.

The cost price of the investor (either purchased in primary or secondary market) is added with the cost incurred to purchase the right shares. As any kind of cost is not incurred for bonus shares, it can be omitted from the calculation. With this method of calculation of CGT, the investors will have to pay taxes only on the actual profit.

Beforehand, the government has been calculating the CGT considering the adjusted price after the book closure as the base price. The actual purchase price of the share was not taken into consideration.

The major conflict had started after the Inland Revenue Department directed for the implementation of calculation of CGT considering the base price of the bonus and right shares. The investors had protested against this method stating that they had to pay taxes even on the losses. Following the same matter, Government has formed a study committee to address the issue soon.