Stock Broker Association Submits 12-Point Proposal for FY 2081/82 to Boost Capital Market Reforms

For the upcoming fiscal year 2081/82, the Stock Broker Association of Nepal has submitted a 12-point proposal to the Ministry of Finance, focusing on tax clarity, market reforms, and investor protection.

Key suggestions include finalizing capital gains tax under Section 92, resolving close-out issues through an auction market, and introducing tier-based tax rates based on shareholding period. One notable and debated proposal is making PAN mandatory for all investors, including minors. Critics argue this could limit participation, while supporters say it will promote transparency and curb misuse in the market.

The recommendations aim to strengthen regulatory clarity and encourage long-term investment in Nepal’s capital market.

The Association’s 12-Point Proposal Includes:

1. Finalization of Capital Gains Tax: Ensure that capital gains tax deducted under Section 95(k) is considered final under Section 92 for individual residents, with tax clearance certificates issued accordingly to remove current confusion.

2. Close-Out Issue Resolution: Address the issue of investors being penalized due to delays in share transfers by immediately starting the auction market and removing the 25% tax on close-out compensation amounts.

3. Capital Gains Tax Based on Holding Period: Encourage long-term investments by imposing capital gains tax rates based on shareholding duration — 7.5% for short-term (up to 1 year), 5% for mid-term (1–3 years), 2.5% for 3–5 years, and 1% for long-term (over 5 years).

4. Uniform Corporate Tax Rate: Address the ambiguity regarding the 30% tax imposed on companies engaged in securities transactions, aligning their tax rate with other companies at 25% to avoid discouraging institutional investors.

5. Mandatory PAN for All Investors: Make PAN compulsory for all investors, including minors, to enhance customer identification and broaden the tax base.

6. Investor Protection Fund Reform: Transfer the Investor Protection Fund from the Office of the Company Registrar to the Securities Board of Nepal (SEBON) for more effective and purpose-driven management.

7. Broker Companies to Go Public: Allow broker companies to issue shares to the public and become listed entities by ensuring legal provisions support their transformation into public limited companies.

8. NRN and Foreign Investment: Enable Non-Resident Nepalis (NRNs) to invest directly in the secondary market and introduce legal provisions to allow foreign institutional investors to do the same.

9. Advanced Market Features: Introduce intra-day trading, securities lending and borrowing, short selling, and derivative instruments like equity-based futures and options. Also, initiate the trading of rights, index funds, and ETFs to boost market activity.

10. Enhance Margin Trading: Revise operational guidelines to address technical and funding issues, ensuring the protection of investments and smooth execution of margin trading.

11. Tradable Government Securities: Allow government-issued instruments such as development bonds, savings bonds, foreign employment savings bonds, and citizen savings bonds to be listed on NEPSE for seamless trading.

12. Clarify Tax Treatment for Investment Companies: Address the disparity in tax treatment faced by investment companies, aligning their tax obligations with those of securities business operators and resolving issues raised by the Office of the Auditor General.