Government proposes capital gains tax cut in 21-point capital market revival plan

The government has proposed cutting capital gains tax on listed securities as part of a 21-point action plan aimed at strengthening and reviving the capital market.

Under the Capital Market Strengthening and Revival Action Plan, 2083, released by the Ministry of Finance on Monday, gains made by resident individual investors from securities held for more than 365 days would be taxed at 3.75%, while gains from securities held for 365 days or less would attract a 5% tax.

The proposed rates are half of those currently in effect. The Finance Act for the current fiscal year had raised the capital gains tax to 7.5% for securities held for more than one year and 10% for holdings of one year or less, after Finance Minister Swarnim Wagle's budget this year.

The action plan also proposes allowing investors to offset losses from the sale of listed securities against gains from similar transactions within the same income year. Capital gains would be calculated through the trading and settlement system, with tax imposed as a final levy on net gains.

The government said the proposed changes are intended to reduce the tax burden on investors and encourage long-term investment in the capital market.

The plan comes amid concerns over weak market activity and broader economic pressures. The government has cited the economic slowdown and the impact of the August 26 Bhotekoshi River floods, which damaged hydropower projects operated by listed companies and other infrastructure, as factors adding pressure to the market.

IPO rules to be revised

The Securities Board of Nepal (SEBON) will immediately issue general eligibility guidelines for companies seeking to issue shares to the public, according to the plan.

Sector-specific eligibility criteria and price discovery mechanisms will subsequently be developed for hydropower, manufacturing and processing, hotels and tourism, agriculture and pharmaceutical companies.

The government has set a target of completing the necessary policy and legal reforms by mid-January 2027.

The plan also calls for improvements to the securities allocation system and reforms to make share consolidation, subdivision and other corporate actions more practical for listed companies.

Margin trading, short selling planned

Proposed amendments to the Securities Act would create a legal framework for margin lending, intraday trading, securities borrowing and lending, and short selling.

Margin lending through SEBON-licensed brokers is targeted for implementation by mid-January 2027.

The government also plans to reform securities brokers and develop them into more professional and technology-driven financial service providers offering a broader range of services.

NEPSE restructuring and new index

The government will begin restructuring the Nepal Stock Exchange (NEPSE) based on recommendations made by a government-appointed task force.

The existing NEPSE index will continue as an all-equity index, while a separate benchmark index will be developed based on factors including tradable shares, market capitalisation, companies’ financial health, trading liquidity, corporate governance and disclosure practices.

Testing of the new benchmark index is expected to begin by mid-December 2026.

NRNs to be allowed into secondary market

The action plan also seeks to open the country’s secondary securities market to nonresident Nepalis (NRNs).

The government plans to submit amendments to the Foreign Investment and Technology Transfer Act and the Foreign Exchange Regulation Act to the Cabinet by mid-October to facilitate NRN participation.

Institutional investment to be expanded
The government plans to increase the participation of institutional investors in both the primary and secondary markets.

The Employees Provident Fund, Citizen Investment Trust, Social Security Fund, insurance companies and mutual funds will be encouraged to increase their investment in securities and reduce their concentration in bank deposits.

The necessary legal, policy and structural reforms are targeted for completion by mid-December 2026.

Bond market to be developed

The government also plans to strengthen Nepal’s corporate bond market to reduce the economy’s dependence on bank financing.

The action plan proposes promoting specialised instruments such as green bonds, catastrophe bonds, social bonds, project-specific bonds and environmental bonds.

A framework covering the use and disclosure of bond proceeds is expected to be developed, while measures will also be taken to create a more active secondary market for government securities.

Private companies could also be allowed to issue bonds under proposed amendments to the Securities Act.

SEBON to investigate securities offences

The plan proposes granting SEBON authority to conduct inquiries and investigations into securities-related offences.

The government also intends to establish legal and market infrastructure for private equity and venture capital to improve financing options for startups, innovative businesses and growth-oriented small and medium-sized enterprises.

Banks’ market exposure under review

SEBON and Nepal Rastra Bank will jointly review rules governing investments by banks and financial institutions in the capital market.

The review will cover investment limits, risk weights and capital requirements, while considering systemic risk, liquidity, returns, financial interconnectedness and investor protection.

Nepal Rastra Bank will also require banks and financial institutions to adopt board-approved investment policies. Such policies would provide for a minimum 45-day holding period for secondary-market investments to discourage speculative trading.

The government will also study the institutional capacity and structure of CDS and Clearing Ltd, with the review expected to be completed by mid-March 2027.

Overall, the government says the action plan is intended to deepen the capital market, diversify financial instruments, improve market infrastructure and encourage greater domestic and foreign investment.

The country’s secondary market had been eagerly anticipating the plan after Finance Minister Swarnim Wagle recently announced plans to introduce a package aimed at improving market conditions. Amid expectations of policy measures to support the stock market, the market has recorded double-digit growth for two consecutive days.