Study panel seeks additional time to develop CGT calculation mechanism

Pople throng at Nepal Stock Exchange office in Jamal to monitor share transactions after the share market slightly increased by 5% since yesterday, in Kathmandu, on Wednesday, August 10, 2016. Photo: RSS/ File

Kathmandu, July 18

A study panel, formed by Ministry of Finance (MoF) to recommend a feasible solution to the dispute between tax administration and stock investors on calculation method of capital gains tax (CGT) in trading of bonus and right shares, has sought additional time.

The panel, led by Joint Secretary of MoF Uttar Kumar Khatri, was supposed to submit its report to the finance minister by mid-July. However, the team has asked for more time to develop an effective model for CGT calculation.

Talking to The Himalayan Times, Khatri said the panel will submit its report to the finance minister after it develops a calculation method that would be ‘acceptable to both tax administration and stock investors’.

Share investors had halted trading in secondary market for a whole day on June 5 and for half day on June 6 following the dispute with tax administration on CGT calculation method after fiscal budget 2018-19 was unveiled. Trading had resumed after the government formed a study panel and announced the old method of calculating CGT would be applicable till panel came up with a solution.

Along with the increase in the CGT to 7.5 per cent from five per cent through the federal budget 2018-19 on May 29, the tax administration had also changed the CGT calculation method. Those who sell rights and bonus shares were forced to pay 7.5 per cent by deducting Rs 100 face value of per unit share.

Earlier, CGT used to be enforced on income made from difference in actual price of share traded and adjusted base price of stocks. Adjusted base price of stock means price of stock immediately before book closure plus value of share received from rights and bonus divided by number of shares.

Before, traders had to pay tax only on profit earned from trading of bonus and rights shares. But the new provision compelled share traders to file CGT whether or not they earned profit, as the base rate (face value) of per unit bonus and rights share is fixed at Rs 100.