Stock Market can loose its charm if the Base Rate issue is not addressed in time

The already falling market has now found a new reason and this time it is something that will directly hit the shareholder's profit.

At the time when investors were looking for a helping hand to develop the capital market, the newly introduced tax rule has demotivated the investors. The excess flow of right and bonus shares have already exceeded the demand and it was the time investors were expecting some developmental works that could uplift the demand. Introduction of Online trading, entrance of NRNs, Broker license for banks were some of the tasks which could contribute to invite new investors in the market. Investors were in need of such policies that could motivate new investors as well as companies to enter the stock market. But the introduction of unscientific and unplanned tax system has resented the investors and as a result investors are now on a protest and have urged the broker companies to not place any orders. 

What actually happened ?

As per the provision in Income Tax Act 2058 Inland Revenue Department has directed NEPSE to charge the Capital gain tax on the basis of the Par value as the cost price of bonus and right shares. Previously it was calculated considering the base rate published by the company after the price adjustment. Now the companies won't published the base rate rather the face value will be considered for calculation of the Capital Gain Tax. 

It is a well known fact that Bonus and Right shares doesn't increase a shareholder's weath. The weath remains unchanged as the share price decreases and the quantity increases. With the introduction of this new rule, shareholders will now be bound to pay a capital gain tax at the time when there's no gain. This rule has demoralized the shareholders and will definately make people to think twice before stepping in the stock market. 

What Shareholders Say ?

"This is a worst decision ever", said an investor Mr. Mahesh Neupane. "We Nepalese Investors, who were already paying high charges, are now bound to pay capital gain based on the face value. This is really unscientific and unjustified. We happily accepted the increased capital gain tax rate of 7.5% but the new rule by IRD is unacceptable. This action is no different than that done by theives and thugs" He further added. 

Another Investor Mr. Bishnu Basyal said "Nepalese were already paying tax on capital gain, but the capital loss born by investors were never adjusted with the gain. The taxes and charges were already high, and now another hammer has fallen on the investors head. This is a high time for investors to raise voice against this ill practice."       

What can be done ?

As per the investors, the government should back from the previous decision. The previous rule regarding base rate was scientific enough and in favour of all the stakeholders. The new coercioned rule is false, unplanned and the one with dangerous consequences.

However, the concerned department has not shown any sign of addressing the investors demand yet.