Investor Tilak Koirala has shared a 30-point proposal on Facebook to improve and expand the capital market in Nepal.
Share market investor Tilak Koirala has publicised a 30-point suggestion list for capital market reforms through Facebook. His suggestions include reviewing capital gains tax, restructuring Nepal Stock Exchange (NEPSE), amending securities laws, improving IPO systems, and modernising market infrastructure.
New Proposals for Capital Gains Tax
Koirala has suggested the government to revising the current capital gains tax system to make it scientific and encourage long term investors. For resident individual investors, he suggests a 3 percent tax on profits from shares held for more than 1095 days with a facility to adjust and carry forward losses. For shares held between 365 days and 1094 days, the tax should be 5 percent, and for shares held between 30 days and 364 days, it should be 7.5 percent. He also proposed to removing the current 25 percent tax for non-resident Nepalis and keeping it at 7.5 percent based on a three-year lock-in period. Selling converted founder shares should attract 10 percent tax, while intra-day and short-selling should have 15 percent tax. To encourage institutional investors, income tax for dedicated stock trading firms should be set at 20 percent. Individual residents holding mutual fund units bought from secondary market for a year should get annual income tax exemption up to Rs. 50,000.
NEPSE Restructuring and IPO Rules Amendment
The suggestions mention that Ministry of Finance should quickly present a proposal to the Cabinet to restructure NEPSE. This restructuring should give 30 percent ownership to foreign strategic partners and 15 percent to local listed institutions. Koirala also suggests amending Securities Registration and Issue Regulation 2073, Book Building Guidelines, and Merchant Banker Guidelines to make sure that companies can bring at least 30 percent IPO only through book building method. Out of this, 60 percent must go to institutional investors and 40 percent to the public under 10-kitta policy. To stop collusion, related institutional investors must be blocked from pricing process, and underwriters must submit 10 percent cash or bank guarantee. Lock-in periods for institutional and local resident shares should be removed immediately.
Legal System and Corporate Governance
The proposal requests making Company Act 2063, Foreign Investment and Technology Transfer Act, NRN Act, Investment Board Act, Industrial Enterprise Act, and securities laws interconnected. Finance Ministry should form a task force to draft amendments to Securities Act 2063 within 30 days. For corporate governance, only companies with at least 25 percent promoter shares should be allowed to ask for rights shares. If existing shareholders do not buy rights shares, remaining shares must be sold through online bidding system by CDSC. Listed companies must have 25 percent promoter shareholding, and those failing to do so must hire 4 independent directors from SEBON roster. Companies should also allow video conferencing and online voting for annual general meetings.
Trading Systems and Broker Services
Koirala proposed that SEBON, NEPSE, and CDSC should bring automatic EDIS system through TMS so that shares sold by investors get transferred automatically. Commercial bank subsidiaries and stock dealers should be encouraged to offer margin trading services at competitive interest rates. He also suggests that complaints filed by investors should be addressed within three days, and all existing complaints should be cleared within 30 days. To protect investors, multi-broker mapping system should be brought using single KYC and UCC so that investors can trade even if their broker is suspended. Brokers should be classified into full brokers and commission brokers. Share splitting should be permitted for companies with net worth over Rs. 2000 per share to make face value Rs. 10 per share.
Market Monitoring and Strict Controls
If listed companies fail to hold their annual general meeting on time, directors and CEO should be fined Rs. 1 lakh personally, which will go to Settlement Guarantee Fund. Only licensed advisors should be allowed to give stock advice, and people spreading rumors or doing manipulation on social media must face action. NEPSE and SEBON must install automatic surveillance systems. Political leaders, lawmakers, and ministers should not make public statements that negatively affect capital market. Finally, Koirala suggested that Finance Ministry should form a joint task force led by its representative in SEBON to implement these capital market reforms quickly.
AI Disclaimer: This article was originally published on https://bajarkochirfar.com. It has been translated with the help of AI. For the best understanding and accurate facts, we recommend reading the original Nepali version.
