Government’s income from share trading dips by 71.3 percent

With the country’s stock market going through a bearish run throughout the last fiscal year, the government income from stock trading has taken a huge beating. The capital gains tax (CGT) from stock trading plunged by a whopping 71.3 percent in FY 2022/23. 

In fact, CGT collection has declined for the second straight year. After collecting a record-high capital gains tax in FY 2020/21, the government income from stock trading has been on the decline in the last two fiscal years. 

According to the CDS and Clearing Limited (CDSC) which keeps the consolidated data of the revenue from the stock market, the government collected only Rs 2.97bn as capital gains tax in FY 2022/23. The CGT in FY 2021/22 stood at Rs 10.35bn. The capital gains tax collection from the stock market had reached an all-time high of Rs 14.13bn in FY 2020/21. 

With the stock market on a bull run, tax collection from the capital market had surged exponentially in FY 2020/21. The domestic bourse has taken a huge surge from last year July when lockdown was imposed to contain the first wave of the Covid-19 pandemic. The digitization of the capital market which allows investors to conduct stock trading from their homes also helped new investors to enter the capital market.

In FY 2022/23, the government collected CGT totaling Rs 1.32bn from long-term share trading and Rs 1.64bn from short-term share trading.

Stock analysts attribute multiple factors to the decline in CGT collection in the last two years. In FY 2021/22, the CGT fell by around 27 percent mainly due to the government’s decision to raise the taxes from the stock trading. The government had imposed a five percent CGT on income from long-term trading of shares (shares that are sold after a year of purchase) and a 7.5 percent CGT on short-term trading (shares that are sold in less than a year of purchase) in FY 2021/22. 

In addition to this, the Nepal Rastra Bank (NRB)’s decision to tighten the margin lending through the Rs 120m cap and to increase the risk-weighted average to 150 percent on margin loans also led to a downfall in the stock market in the last two years. This, along with the extended bearish run in the stock market in FY 2022/23 contributed to a decline in share trading as well as turnover in the Nepal Stock Exchange (Nepse). 

The capital gains tax received by the government mainly depends on two things—the share prices of the companies listed in Nepse and their turnover. If the share price of the company increases, the investors earn profits, as a result, the CGT received by the government also increases. Similarly, when the number of transactions is higher, tax collection is likely to increase. However, in the last fiscal year, the number of share transactions has decreased along with the stock market indicators. “The CGT collection declined in the last fiscal year as overall stock market trading went through a bearish run,” said Suresh Neupane, Spokesperson of the CDSC.

Income from share trading