Nepali Times
Economic Sense
Save shares from the tax axe


If you are one of those pessimists who thinks that the Nepali economy is a big black hole, take heart in the optimism of the share markets. In the land of the holy bull, Nandi, the stock market is firmly a bull\'s best friend at the moment.

How else do you explain that shares for a hotel that is yet to start operation commands such a high price that promoters are floating a rights issue? The logic of giving an opportunity to existing shareholders to buy yet more shares is that Nepalis still treat share certificates more like lotto tickets than as investments.

The mad scramble for forms in the issue of shares by another new hotel in Kathmandu shows that in Nepal you can sell ice to an abominable snowman.

Your future financials may be in dire straits but as long as your offer paper covers it, your issue sells like hot pakoras. The upbeat share market has made some of us forget that the gradual slump in the market over five whole years has eroded millions from share values.

In the absence of opportunities for investment, Nepalis are left with no choice other than savings, jewellery or buying the paper promises of new companies.

The absence of diligence and certification of the offer papers provide opportunities for most companies to con the public. How else can offer documents get approved without even providing basic financial costs of projects?

The last time markets were buoyant was in 1994, and Nepal Rastra Bank brought in regulations restricting liquidity in the market. Then a few gyp share issues in the primary market dealt a blow that kept it sagging for many years.

Now, just as it seems to be lifting its head, the taxman has come with novel ideas to keep Nepal\'s capital markets down. The proposed new Income Tax Act seems to assume that the market is mature enough to be pruned with a tax axe on share investments and stock trading. Taxes are proposed on capital gains made on the sale of shares as well as on dividend income.

The fact that somebody can be made to pay tax on shares inherited makes one really wonder what kind of people are making policy. The absence of tax on capital gains and dividend income was a major incentive for foreign investors. It was this difference from neighbouring countries that attracted the little investment so far to Nepal. The tax man seems to want to raze to the ground anything good that starts happening to the economy.

Why is there so much fuss to collect just Rs 7 billion a year? Why focus so much energy to realise money that is worth just 30 ropanis in Durbar Marg? Billions get paid under the table; companies and business people are at mercy of \'tax-pimps\': and the cost to the economy is more than what is collected.

It may be time to ponder abolishing such a law. The gains from transparent business and disclosures by companies would be worth more than the revenues that are collected now. The capital market, for one, would get a boost in the short run and also provide long-term stability.

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(11 JAN 2013 - 17 JAN 2013)