Stock brokers halt trading in protest of VATStockbrokers halted transactions in the secondary market on Thursday, protesting against the government’s move to bring stockbrokers into the value added tax (VAT) regime.
Stockbrokers halted transactions in the secondary market on Thursday, protesting against the government’s move to bring stockbrokers into the value added tax (VAT) regime.
They warned to halt transactions for an indefinite period, if the government did not roll back its plan.
The Inland Revenue Offices (IROs) had been asking stockbrokers to clear VAT on their commission for the past four years. On Wednesday, the IROs issued letters to the concerned stockbrokers asking them to clear their VAT amount with penalty, interest and other surcharges.
The stockbrokers have been given 15 days to comply.
According to Stockbrokers’ Association of Nepal (SBAN), the IROs sent letters
to Investment Management asking to clear dues of Rs15 million.
Similarly, Sundhara Securities has been asked to submit VAT amount of Rs6 million. Sources said that the tax offices are writing to other 48 stockbrokers soon.
The government has been doing homework since last year to bring stockbrokers in tax bracket. However, it has failed to enforce the provision after stockbrokers protest.
According to stockbrokers, they have not been charging VAT to the investors as
SBAN Past President Narendra Raj Sijapati said they were compelled to halt the transactions as they were facing a dilemma on how to impose VAT on investors.
“The law has not allowed us to issue the physical invoice. And there is no system developed in the software to impose VAT amount from the investors,” said Sijapati, adding that they decided to stop transaction to avoid hassles that they might face in future.
The government has been considering imposing 13 percent VAT on the stockbrokers’ commission amount. However, the stockbrokers have been reluctant to implement the government’s move saying that it was inappropriate to charge VAT on the commission as they had to share certain portion of the commission with Nepal Stock Exchange (Nepse) and Securities Board of Nepal (Sebon).
Stockbrokers have been charging 0.35-0.6 percent commission from investors. “Out of the commission, stockbrokers have to pay 20 percent to Nepse and 15 percent is deducted as Tax Deducted at Source (TDS),” Sijapati said. “Likewise, stockbrokers need to pay 0.6 percent of their commission amount annually to Sebon as levy charge.”
According to him, they will be compelled to pass on the VAT amount to their client, adding extra burden to the investors. “As the implementation of VAT increases the investors’ transaction cost, they could be discouraged to invest,” he said.