Capital Market Strengthening and Revival Action Plan raises hope for private sector

Kathmandu, Sept 15: The ‘Capital Market Strengthening and Revival Action Plan, 2083’ unveiled by the Finance Ministry on Monday is expected to strengthen the private sector, making the entire capital market vibrant.

The market is likely to see positive impacts if the Action Plan is implemented effectively, say representatives from the relevant sectors.

According to Priya Raj Regmi, Chairperson of Capital Market Committee, Federation of Nepalese Chamber of Commerce and Industries (FNCCI), the Action Plan seems highly revolutionary and progressive, seeming capable to bring significant changes to the capital market.

 The announcement to reduce the rates of tax in capital gains for short-term and long-term transactions has encouraged the share market. It has also proposed improvements in the existing tax provision to promote the long-term investment in capital market, he added.

Action Plan proposes the tax rate at 3.75 percent on gains from holdings in listed entities held for more than 365 days, and at 5 percent on gains from holdings held for 365 days or less.

Earlier, the budget for the current fiscal year announced capital gains tax rates at 10 percent for short-term holdings and 7.5 percent for long-term holdings. Regmi added that investors were not confident because of such a budget provision.

He assessed that the Action Plan aims to promote institutional investors, controlling unnecessary fluctuations in the market.

Nepal Investors’ Forum former Chair Chhotelal Rauniyar is of the view that the government demonstrated greater solidarity with the private sector by reducing that rates of capital gains tax beyond what investors had demanded.  The Action Plan sends a message that the government genuinely wants to improve and strengthen the capital market, he said.

According to the action plan, banks and financial institutions need to create investment policies in a way that reduces ‘speculative risk’ in their investments in the secondary market for securities.

Nepal Rastra Bank needs to make arrangements as soon as possible so that the board of directors of banks and financial institutions sets an investment policy where the periodic limit for such investments is at least 45 days, the action plan said.

Former president Rauniyar said that this provision also sends a positive message by allowing banks and financial institutions to freely buy and sell shares. Previously, the investment limit for banks and financial institutions was six months.

He mentioned that the policy of allowing non-resident Nepalis to enter the secondary market is also the kind that keeps the market active and sends a positive message for the economy.

The plan includes topics like improving primary and secondary markets, developing new financial instruments, expanding institutional investment, developing the bond market, restructuring NEPSE, allowing non-resident Nepalis to enter the secondary market, improving the tax system, and reviewing banks’ and financial institutions’ investments in the capital market.

Similarly, the policy has been brought to make mutual funds the basic pillar of professional, diversified, transparent, risk-aware, tech-friendly, and long-term investment by developing instruments like the bond market, money market, and exchange-traded funds (ETFs).

For this, the board will immediately make the policy public and prepare the necessary guidelines and infrastructure by the end of Mangsir (December 15). Not only that, the action plan has prioritized institutional reform and strengthening of the securities brokerage business.

The board aims to immediately release a policy to transform the brokerage business into an institution that provides modern, professional, strong, tech-friendly, and multi-dimensional securities financial services according to international practices and standards.

The plan also includes the matter of preparing drafts of separate bills regarding regulatory and market infrastructure to make timely amendments to the Securities Act, 2006.

This will create a legal basis for operating instruments like margin lending, inter-day trading, securities lending and borrowing, and short selling.