Kathmandu: With a protracted slowdown in real estate and stock market activities, the government’s capital gain tax collection dropped 15 percent in the last fiscal year.

The government collected Rs 880 million in capital gain tax in FY 2010-11, against Rs 1.04 billion a year ago. Of the Rs 880 million, Rs 680 million was collected from real estate and Rs 200 million from the share market.

Traders say contribution of small and individual traders to the capital gain tax collection was nominal. “Big traders have a major contribution to the last year’s figure,” said Min Man Shrestha, general secretary of Nepal Land and Housing Development Association.

As people pay tax on the basis of government-fixed average rate of land despite high market price, the government gets little tax, according to Shrestha. He, however, defended big traders saying that they could hardly mislead the government authority. “If they try to mislead the authority, they are bound to pay high corporate tax from their increased income,” he said. Corporate tax stands at 25 percent of profit.

The government through the budget for the current fiscal year brought down capital gain tax to 5 percent. Realty traders say this will help bring more people under the tax net.

However, stakeholders related to capital market say chances of increasing revenue from the capital gain tax imposed on stock investors are slim. “Revenue grows only when transactions rise,” said Anjan Poudel, president of Nepal Stockbrokers’ Association. “Transactions have dropped sharply of late.”

Daily transaction amount has declined to Rs 20 million currently from Rs 100 million in previous years. Traders have suggested the government to impose transaction tax instead of capital gain tax. “Transaction tax helps the government earn from each transaction,” said Poudel.

Both realty and stock traders say their businesses will grow after the liquidity crunch eases and bank interest rates drop. “Transactions will grow right after the decline in interest rates,” said Shrestha.

In a relief measure to realty and stock market, Nepal Rastra Bank has allowed banks and financial institutions to renew realty and margin loans for a year if loanees pay all outstanding interest of the last fiscal year. Reduction of capital gain tax and these relief measures are expected to help these sectors.

Fiscal year     Collection

2005-06         Rs 0.65million

2006-07         Rs 1.12 million   

2007-08         Rs 803.49 million

2008-09         Rs 761.61 million

2009-10         Rs 1.04 billion

2010-11         Rs 880 million

source: The Kathmandu Post(2011),"Capital gain tax collection dropped 15pc last fiscal year", The Kathmandu Post, 31 August 2011