Capital gains tax on sale of shares has been slashed from 7.5 to 5 percent, but the complexity of calculating the amount of capital gains has hindered implementation of the new rule which came into effect last Wednesday.

Share investors, brokers and even the regulatory authority have no idea how to implement the government's new policy. Capital gains refers to the profit that arises from the sale of shares.

Investors were elated when the government announced through the budget statement that capital gains tax on sale of shares was being reduced to 5 percent from 7.5 percent with effect from July 17, the beginning of the fiscal year. They were surprised when tax authorities asked them to self-declare the amount of capital gains by taking the weighted average of the shares they had purchased on different dates.

As per the new rule, investors have to take the sum of prices of all shares that they purchase at different prices and divide the total amount by the number of shares to get the cost price, which is deducted from the current share price of the particular company to estimate the amount of capital gains.

While implementing the new rule, stockbrokers have asked investors to be present at their office to settle capital gains tax. Complaining that the provision was impractical, investors said they would launch a protest if the government did not resolve the problem.

Tulsi Ram Dhakal, vice-president of the Nepal Investors’ Forum, said investors could not be present at their stockbrokers’ office every time they sell shares. “When share transactions and even financial settlements are being done online, it is not possible to visit the brokers’ office, especially for those who conduct transactions from distant places,” said Dhakal.

He complained that tax authorities had not fixed the cutoff date to calculate the cost price of purchased shares. Earlier, the government had been levying tax by considering the reference price of shares on January 15, 2016 to calculate capital gain.

Dhakal said they would launch a protest if the government did not simplify the rule for computing capital gain.

After the government enforced the Finance Act, CDS and Clearing, a subsidiary of the Nepal Stock Exchange which acts as a clearing agency for clearing stock transactions, asked stockbrokers to implement the directive. The stockbrokers said they were also not happy with the new rule.

Bharat Ranabhat, president of the Stockbrokers’ Association of Nepal, said they had asked investors to appear with evidence to estimate the cost price while selling shares. “Under the new rule, sellers have to consider the prices of all shares even though they intend to sell only a portion of the shares they hold, which is not fair,” said Ranabhat.

“For instance, if investors wish to sell only 500 out of the 1,000 shares purchased on different prices, they still have to calculate capital gains by considering the prices of all shares to estimate the cost price,” said Ranabhat, adding that investors were being made to bear an extra burden by the new law.

Even the Securities Board of Nepal, the regulator of the sector, is not clear about how to implement the new tax law. “It created confusion mainly among investors who purchased shares a long time ago, and have no record of how much they paid for them,” said Niraj Giri, spokesperson for the board. “As it is related to government tax, we cannot make a decision on the issue,” said Giri, adding that the Ministry of Finance was holding discussions with stakeholders to revise the provision.

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