Business & Finance
Nepal Halves Capital Gains Tax on Shares After Market Downturn
By REPUBLICA
KATHMANDU, Sept 15: The Nepali government has reversed a recent increase in capital gains tax (CGT) on share transactions following a prolonged decline in the country’s stock market that began after the tax hike was introduced in the Fiscal Year 2026/27 budget.
The Ministry of Finance (MoF) announced the change as part of its "Capital Market Strengthening and Revitalization Action Plan 2026," which sets a maximum CGT rate of five percent on share transactions—half of the previous 10 percent rate.
Under the new plan, individuals trading shares listed with the Securities Board of Nepal (SEBON) will pay a tax rate of 3.75 percent on gains from holdings kept for more than 365 days, and 5 percent for holdings kept for 365 days or less.
The government had earlier raised CGT rates to 7.5 percent and 10 percent, up from 5 percent and 7.5 percent, for short-term and long-term investors respectively, during a period of market slowdown. Stockbrokers reported that this increase led to a sharp drop in trading activity and weakened investor confidence.
In addition to the tax rollback, the mandatory holding period for investments made by banks and financial institutions in the secondary securities market has been reduced to 45 days, down from six months. The action plan also directs Nepal Rastra Bank to instruct the boards of these institutions to create investment policies that reduce speculative risks.
As part of immediate reforms, SEBON will issue new guidelines outlining eligibility criteria for initial public offerings (IPOs) in the primary securities market. These measures are required to be implemented by mid-January 2027.
Broader reforms outlined in the plan include updated eligibility standards, price discovery methods, and securities allotment systems for public offerings in sectors such as hydropower, manufacturing, hospitality, tourism, agriculture, and pharmaceuticals.
The MoF also stated that SEBON will introduce policies to further develop financial instruments including the bond market, money market, and exchange-traded funds (ETFs). Mutual funds are to be transformed into more professional, diversified, transparent, and technology-driven investment vehicles, with SEBON required to establish the necessary guidelines and infrastructure by mid-December 2026.
The plan also aims to modernize the securities brokerage industry, aligning it with international standards through the introduction of margin lending, intraday trading, securities lending and borrowing, and short selling.
Additionally, the MoF confirmed it will move forward with restructuring the Nepal Stock Exchange (NEPSE), based on recommendations from a government task force report submitted last year. The plan also proposes revising NEPSE’s market indices. While the current NEPSE index will continue to serve as an "All Equity Index," a new index will be developed based on factors such as tradable shares, market capitalization, company financial health, trading liquidity, corporate governance, and information disclosure.