Capital Market Strengthening and Revival Action Plan raises private sector hopes

KATHMANDU: The Ministry of Finance has unveiled the 'Capital Market Strengthening and Revival Action Plan, 2083' to revitalise the capital market and boost private sector confidence. Representatives of relevant sectors say the plan is likely to have a positive impact if implemented effectively.

Under the new plan, capital gains tax rates have been set at 3.75% on gains from listed entities held for more than 365 days and 5% on holdings of 365 days or less. This reduces the tax burden from the rates of 7.5% for long-term holdings and 10% for short-term holdings set in the current fiscal year's budget, addressing investors' previous concerns.

Priya Raj Regmi, chairperson of the Capital Market Committee under the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said the action plan appeared highly revolutionary and progressive and capable of bringing significant changes to the capital market. He added that the tax reduction had encouraged the share market and said the plan aimed to promote institutional investors to control unnecessary fluctuations.

Former chairperson of the Nepal Investors' Forum Chhotelal Rauniyar said the government had demonstrated greater solidarity with the private sector by reducing tax rates beyond investors' demands. "The action plan sends a message that the government genuinely wants to improve and strengthen the capital market," he said.

To reduce speculative risks, the plan requires Nepal Rastra Bank to promptly make arrangements for banks and financial institutions to set investment policies with a minimum holding period of 45 days. Rauniyar said the provision would allow financial institutions to buy and sell shares more freely, noting that the previous holding period was six months.

He added that allowing non-resident Nepalis to enter the secondary market would help keep trading active and benefit the broader economy. The initiative covers the restructuring of the Nepal Stock Exchange, expansion of the primary and secondary markets, development of new financial instruments, and improvement of tax and investment systems.

A policy has also been introduced to make mutual funds a basic pillar of professional, diversified, transparent, risk-aware, technology-friendly and long-term investment through instruments such as the bond market, money market and exchange-traded funds. The board will publish the policy immediately and prepare the necessary guidelines and infrastructure by December 15.

The action plan also prioritises institutional reform and the strengthening of the securities brokerage business. The board aims to immediately issue a policy to transform brokerage firms into modern, professional and technology-friendly institutions offering multidimensional financial services in line with international standards.

The plan includes preparing drafts of separate bills on regulatory and market infrastructure to facilitate timely amendments to the Securities Act, 2006. This will create a legal basis for instruments such as margin lending, intraday trading, securities lending and borrowing, and short selling.