Booming stock market earns Nepal government its highest-ever tax haul

KATHMANDU: The Government of Nepal has collected the highest-ever capital gains tax from share transactions in the fiscal year 2081/82 (2024/25), setting a new benchmark in Nepal’s stock market history. As per data from CDS and Clearing Limited (CDSC), the significant growth in stock transactions has simultaneously driven an exceptional rise in revenue collection under capital gains taxation.

Compared to the previous fiscal year, stock transactions soared nearly threefold to exceed NPR 21 trillion. As a result, the capital gains tax collected surged threefold from NPR 5.51 billion in FY 2080/81 to NPR 16.57 billion in FY 2081/82 — the highest amount collected in Nepal’s capital market history.

According to NEPSE data, total share transactions amounted to NPR 7.34 trillion in FY 2080/81, which dramatically increased to NPR 21.24 trillion in FY 2081/82. The surge in market activity directly contributed to the unprecedented rise in capital gains tax collection.

Threefold Growth in Transactions and Revenue
The volume of securities traded increased by 189.23% year-on-year. Prior to this, the highest recorded trading volume was in FY 2077/78 at NPR 14.54 trillion, when capital gains tax revenue had peaked at NPR 14.13 billion. Notably, even during the time when the NEPSE index surpassed 3,200 points, capital gains tax collection did not match this year’s figure, making FY 2081/82 a historic year for Nepal’s capital market.

In contrast, only NPR 2.97 billion in capital gains tax was collected in FY 2079/80 due to sluggish market performance, with total trades limited to NPR 4.67 trillion. Similarly, in FY 2078/79, NPR 10.35 billion in tax was collected from NPR 12.02 trillion in trading volume.

Capital Gains Tax Structure and Market Dynamics
According to Nepal’s taxation policy, investors selling shares within one year of acquisition are subject to a 7.5% capital gains tax. If the shares are held for over a year, a 5% tax is levied on profits. Market volatility, which influences trading volumes, inherently affects capital gains tax revenue — lower market activity leads to reduced collections and vice versa.

Back in FY 2077/78, when the NEPSE index climbed from 1,362.35 points to a peak of 2,883.41 by the end of the fiscal year, market capitalization surged to NPR 40.10 trillion. The upward momentum continued until it hit 3,199 points in early FY 2078/79 before declining. As the index fell, so did market capitalization and transaction volumes, leading to reduced tax collections in subsequent years.

In FY 2078/79, market capitalization fell to NPR 28.69 trillion and the NEPSE index dropped to 2,009.49 by the fiscal year’s end. This slowdown impacted capital gains tax collection, which dropped to NPR 10.35 billion. However, in FY 2081/82, the 96-point increase in the NEPSE index contributed to both increased trading and tax revenue.

Institutional and Individual Investors Key Contributors
The record-breaking capital gains tax collection was primarily contributed by individual investors, institutions, corporates, and stock dealers. The increased trading from short-term investors — subject to the higher 7.5% tax — played a crucial role in boosting government revenue this fiscal year.

Notably, the revised capital gains tax rate for short-term (within 1 year) and long-term (over 1 year) investors was implemented from the start of FY 2078/79. Prior to that, a flat 5% tax rate applied to all share transactions regardless of holding period.

NEPSE and SEBON Revenues Surge
From trading commissions during FY 2081/82, the Nepal Stock Exchange (NEPSE) earned NPR 1.94 billion, while the Securities Board of Nepal (SEBON) collected NPR 630 million. The government also raised NPR 1.63 billion through Tax Deducted at Source (TDS) during share transactions.

Listed Companies and Securities Update
By the end of FY 2081/82, the number of listed companies at NEPSE reached 272. During the year, three companies were delisted due to mergers or acquisitions, while four new companies entered the exchange via Initial Public Offerings (IPOs).

The stock market saw the listing of 365 million shares via IPOs, 1.12 million shares through additional issuance, 432.58 million government and local shares, 378.1 million mutual fund units, and 8.3 million institutional bonds — totaling approximately 804.29 million listed securities.

Capital Gains Tax Collected Over the Last 5 Fiscal Years:

FY 2077/78:                     NPR 14.13 billion

FY 2078/79:                     NPR 10.35 billion

FY 2079/80:                     NPR 2.97 billion

FY 2080/81:                      NPR 5.51 billion

FY 2081/82:                      NPR 16.57 billion