Stakeholders have suggested that the government should discourage the ever-increasing speculation in the capital market and encourage long-term investment through the upcoming budget. Stating that distortions have increased in the stock market in recent years, they emphasize that the market should be made clean, disciplined and transparent by solving the problems in this sector through effective regulation, supervision and policy facilitation. 

The suggestion given by the Nepal Stock Brokers Association to Finance Minister Swarnim Wagle mentions that different tax rates should be imposed based on the period in which investors hold shares. ‘Since more revenue will be collected by expanding the scope than by increasing the tax rate, it seems that a capital gains tax should be arranged at the rate of 7.5 percent for the short-term period (up to 1 year), 5 percent for the medium-term (1 to 3 years), 2.5 percent for (3 to 5 years) and 1 percent for the long-term (more than 5 years),’ said Association President Sagar Dhakal. ‘In the case of natural persons, the capital gains tax deducted in advance should be interpreted as a final tax.’ 

Similarly, the association has suggested to the government to ensure that the capital gains tax deducted in advance in the case of resident natural persons as per Section 95(a) of the Income Tax Act, 2058 BS is deducted as per Section 92 and the finalization is ensured, and to make arrangements to obtain tax payment certificates from the tax office on the same basis, and to resolve the current confusion.

‘In the context of investment companies established for the purpose of buying and selling securities and obtaining tax payment certificates by filing income statements accordingly, the Office of the Auditor General has been explaining that such companies are also like securities traders and have been shown to be paying 30 percent income tax,’ said Chairman Dhakal. ‘The situation where tax offices are determining taxes accordingly has spread panic in the market and the morale of institutional investors has dropped.’

To solve this problem, Dhakal said that such dilemmas should be addressed by bringing uniformity in the income tax of such companies through the upcoming budget and fixing the income tax rate at 25 percent. Dhakal said that to complete the privatization process of the Nepal Stock Exchange, the shares of the Nepal Stock Exchange owned by the Rastra Bank will be sold to a foreign stock exchange to bring in a strategic partner, which will help in bringing in international knowledge and modern technology into the Nepali capital market.

Neeraj Giri, former executive director of the Nepal Securities Board, said that the government should make a special policy to completely transform the capital account and bring in foreign direct investment (FDI) along with NRNs in the stock market. ‘The NRNs’ complaint is that the return on investment cannot be repatriated in foreign currency,’ he said, ‘We should first bring in NRN investment through policy reforms and only then push for FDI.’

Currently, capital gains tax is being levied on the stock market. There is uncertainty about whether it is the final tax or whether the tax should be paid again after that. Giri said that the government should resolve this matter through the budget. He said that the structural reform of the Securities and Exchange Board of Nepal should be done for capital market reform and that the board's capacity should be enhanced by amending some existing laws for that process.

Similarly, arrangements should be made as soon as possible to allow non-resident Nepalis to invest directly in the secondary market and that it should be made easy and certain to withdraw investments by making capital gains tax equal to that of natural persons in securities transactions. He stressed that legal arrangements should be made to allow foreign investors to invest in the secondary market in Nepal.

In the current situation, where the current market capitalization is around 4.7 trillion, the amount traded in the stock exchange has been limited to only three billion. 

In such a situation, to ensure sustainable development of the market and to prevent investors from losing their morale, Ghimire said that arrangements should be made for smooth entry and exit of institutional investors, public companies and funds like Nepal Telecom, Employees Provident Fund, Citizens Investment Fund, Social Security Fund, etc. into the market.

 'Since the return on investment in good companies in the capital market is better than the prevailing interest rate in the market, such institutions will also receive less risk and higher returns and it will also support the market,' he said, 'Hedge funds and market maker companies should be allowed to enter the market to prevent unwanted fluctuations in share prices and to make it dynamic and competitive.'

Brokers have also said that after the initial issue is listed on the stock exchange, the shares of all the promoter investors of the listed company will be 'locked-in' for three years by amending the arrangement to lock in only the shares of the promoters who provide personal guarantees while availing loans to basic investors, directors, and banks and financial institutions. Experts say that this will help stop the manipulations of vested interests by taking advantage of the shortage of tradable shares in newly listed companies.

The government should bring a policy to privatize the government-owned stock exchange (NEPSE) through the upcoming budget, said Niranjan Phuyal, CEO of NRN Infrastructure and Development Limited. ‘There is no practice in the world of the government operating a stock exchange, and in Nepal too, since NEPSE is government-owned, it has not been able to work as expected,’ he said, ‘Although there have been many talks of privatization in the past, it has not been implemented. Now a policy should be brought so that it can be implemented.’