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🇳🇵 Nepal /Economy & Trade

Capital market reforms draw mixed response as investors flag tax inequities

From Kathmandu Post · () English

Summarized and contextualized by DistantNews.

At a glance

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  • Nepal's government has introduced capital market reforms in the upcoming fiscal year's budget, including applying Capital Gains Tax (CGT) as a final tax on listed securities.
  • The budget increases CGT rates for both short-term and long-term investors while also outlining measures to modernize the Nepal Stock Exchange and attract foreign capital, including Non-Resident Nepalis.
  • Market experts offer mixed reactions, with some noting Nepal's tax rates remain low regionally and that revised personal income tax thresholds may boost disposable income, while others caution about short-term market performance due to weak corporate earnings.

Nepal's government has unveiled significant capital market reforms in its budget for the fiscal year 2026-27, aiming to modernize the Nepal Stock Exchange (NEPSE) and attract foreign investment. A key provision is the application of Capital Gains Tax (CGT) as a final tax on listed securities, a move long sought by traders for its tax finality.

despite the hikes, Nepal’s tax cap on capital gains remains among the lowest in South Asia, signalling a stable and predictable policy environment.

— Manish AryalA market analyst commenting on the long-term implications of the fiscal policy.

While individual investors will no longer face additional personal tax liabilities on these profits, the accompanying Finance Bill introduces higher CGT rates. Short-term traders, holding shares for a year or less, will see their tax rate increase to 10 percent from 7.5 percent. Long-term investors, holding shares for over a year, will face a 7.5 percent rate, up from 5 percent.

Beyond tax adjustments, the budget signals structural changes to stimulate foreign capital inflows. The government plans legal amendments to facilitate Non-Resident Nepalis (NRNs) entering the secondary securities market, covering investment approvals, profit repatriation, and capital gains. NEPSE is also set to introduce advanced trading instruments like intraday trading, short selling, and derivatives.

short-term market growth might remain slow because corporate performance across sectors is currently weak and investors remain hesitant to take out business loans.

— Gyanendra Lal PradhanA hydropower entrepreneur expressing concerns about immediate market conditions.

Market experts have offered varied perspectives. Chartered accountant Manish Aryal pointed out that Nepal's capital gains tax rates remain among the lowest in South Asia, suggesting policy stability. He also noted that an increased personal income tax exemption threshold and a lower peak tax rate could free up disposable income for investment. Hydropower entrepreneur Gyanendra Lal Pradhan welcomed the tax clarity and NRN inclusion but cautioned that weak corporate performance and investor hesitancy to take business loans might slow short-term growth. Veteran investor Rabin Kandel praised the final tax provision for resolving confusion but argued for more uniform taxation, contrasting the new capital market rates with the higher taxes on normal businesses and specialized sectors.

the final tax provision for resolving years of confusion over tax ceilings for individual traders.

— Rabin KandelA veteran investor commending a specific aspect of the new tax policy.
DistantNews Editorial

Originally published by Kathmandu Post. Summarized and contextualized by our editorial team with added local perspective. Read our editorial standards.

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