The Securities Board of Nepal (Sebon) is mulling to make the permanent account number (PAN) mandatory for all investors in the stock market in a bid to maintain transparency of transactions. 

A proposal has been sent to the Finance Ministry for its approval, Sebon said. PAN is a unique identification number issued to all taxpayers.

As per Sebon’s existing regulation, only investors buying shares worth more than Rs1 million at an initial public offering need to submit their PAN. Investors who trade shares on the secondary market do not need to provide the PAN.

Sebon Spokesperson Niraj Giri said the board had started consultations with the ministry to enforce the PAN system for investors. “If the PAN system is made necessary for all transactions, it is expected to maintain transparency and prevent capital gains tax evasion and other possible malpractices,” Giri said.

Capital gains tax is levied at the rate of 5 percent for individual investors and 10 percent for institutional investors.

Giri said the PAN regulation could also help control the practice of buying shares in the name of others. There are still many traders who buy and sell shares by producing the documents of other persons.

Sebon has also urged the government not to impose value added tax (VAT) on share transactions after the Office of the Auditor General (OAG) recommended that they be brought under the VAT net.

OAG has asked that VAT be imposed, in particular, on the commission received by brokers. In its audit report for last year, the OAG has put down the VAT amount as arrears in account of the Finance Ministry.

In response to the suggestion, the Finance Ministry has also stepped up talks to address the issue through the upcoming budget.

According to Sebon officials, the government cannot impose VAT on share transactions as that would violate the rules of the World Trade Organisation. Nepal is a member of the intergovernmental organisation.

Sebon has been asking the government to replace capital gains tax with transactions tax, waive income tax on dividends from mutual funds and waive tax for the real sector entering the capital market.

Meanwhile, the Nepal Stock Exchange (Nepse) on Thursday reacted to the local election scheduled for Sunday with a gain of 7.77 points in its index.

On the last trading day before the polls, all nine groups in the secondary market posted gains in their indices.