Nepal Stock Exchange (Nepse) on Sunday nosedived 33.71 points to close at 1,273.95 points, as the fallout continues from the government’s decision to charge capital gains tax on bonus share and right shares based on the minimum floor price of Rs100 per share.

Earlier, investors used to pay capital gains tax based on the average of the shares prices adjustment before and after the bonus shares and right shares were issued.

Inland Revenue Department on Friday forwarded letters to the Securities Board of Nepal, Nepse and CDS and Clearing asking the market regulators to revise the capital gains tax in bonus shares and right shares. The tax authority had asked the concerned entities to charge capital gains tax as defined by Income Tax Act 2002.

Nepse Spokesperson Murahari Parajuli said in the new rule, investors need to pay the capital gains tax on both the issued right shares and bonus shares on their valuation that exceeds the base rate of Rs100 per share. 

In the aftermath of the direction by the tax authority, the secondary market posted red, falling below 1,300 points.

The market that opened at 1,307.62 points successively fell to 1,279.74 points in the first hour of trading before reaching to 1,299.48 points.

However, the market constantly dropped points in the remaining trading hours.

Stockbrokers termed the government’s decision unfair. “As many investors could be facing losses even after receiving right shares and bonus shares, the new provision could potentially hit them hard,” said a stockbroker under condition of anonymity. “This could discourage investors at the time when the market has been struggling to gain momentum.”

Apart from the new regulation, the government also revised the rate of capital gain tax. From the commencement of new fiscal year, investors now need to pay 7.5 percent of capital gains tax on transaction of primary shares. As of now, the investors are charged capital gain tax of five percent on shares transaction.

On Sunday, all trading groups except manufacturing posted red in their indices. Insurance was the big loser with a fall of 290.83 points. Mega Bank Nepal with downfall of 9.7 percent in its share price was the biggest loser. Only six companies were among the gainers. Unilever Nepal Limited added up 4.04 percent its shares price and topped the group.