Nepali share market investor Tilak Koirala have shared a 30-point recommendation on social media to reform and expand the country’s capital market.
The well-known investor Tilak Koirala has released a comprehensive list of thirty recommendations on Facebook aimed at reforming the domestic capital market. His suggestions cover wide range of issues, including capital gains tax restructuring, rebuilding the Nepal Stock Exchange (NEPSE), amending stock laws, improving the IPO system, and modernizing market technology.
Restructuring Capital Gains Tax and Promoting Long-Term Investment
To make the tax system more scientific, Koirala suggested that capital gains tax rates should depend on how long an investor holds their shares. For resident individual investors, the tax should be set at three percent if they hold shares for more than 1095 days, with the facility of adjusting and carrying forward losses. For holdings between 365 days and 1095 days, the tax should be five percent, and for holding periods of 30 to 364 days, it should be seven and a half percent. He also proposed reducing the tax for non-resident Nepalis (NRNs) to seven and a half percent from the current twenty-five percent, based on a three-year lock-in period. Additionally, promoter shares converted to public shares should face a ten percent tax, while intraday and short-selling activities should have a fifteen percent tax rate.
To encourage institutional investors, he recommended setting a twenty percent income tax limit for companies that only deal in stock trading. Resident individuals who buy mutual fund units from the secondary market and hold them for over one year should get an annual income tax exemption of up to Rs. 50,000.
NEPSE Restructuring and Reforming the IPO System
The proposal urges the Ministry of Finance to immediately present a plan to the Cabinet to restructure NEPSE. This plan should follow the recommendations of the formed committee, allowing a foreign strategic partner to own at least thirty percent and domestic listed companies to hold fifteen percent of the stock exchange.
Furthermore, Koirala recommended amending the Securities Registration and Issue Regulation 2073, book building guidelines, and merchant banking rules. He suggested that companies should only be allowed to bring their IPOs through the book building process, offering at least thirty percent of their shares. The rules must guarantee that sixty percent goes to institutional investors and forty percent goes to the general public under the 10-kitta policy. To prevent price manipulation, related institutional investors with mutual interests should be banned from participating in price discovery. Underwriters must also submit a ten percent cash or bank guarantee, and the lock-in period for local residents and institutional shares must be removed immediately.
Amending Financial Laws and Improving Trading Systems
The suggestions highlight the need to interconnect various laws such as the Company Act, the Foreign Investment and Technology Transfer Act, the NRN Act, and the Securities Act. The Finance Ministry should form a task force to draft amendments for SEBON and securities laws within thirty days. To make trading easier, an automatic system should calculate the adjusted cost price of bonus and right shares during book closure so that the unfair practice of keeping a default cost of Rs. 100 is removed once mother shares are sold.
To make transactions smooth, SEBON, NEPSE, and CDSC should implement an automatic EDIS facility directly through the Transaction Management System (TMS) using the investor’s login details. Commercial bank subsidiaries and stock dealers should be encouraged to offer margin trading at competitive interest rates. He also suggested establishing a fast-track grievance system where complaints are resolved within three days, aiming for a zero-complaint policy within thirty days.
Strengthening Corporate Governance and Digital Facilities
Under the corporate governance guidelines, companies should maintain at least twenty-five percent promoter shareholding. If a company lacks this, it must appoint at least four independent directors from SEBON’s list in its next general meeting. Standard procedures should allow regular or bulk trading of promoter shares through self-declaration and no-objection letters. Companies should also run their annual general meetings (AGMs) via video conference and provide online voting facilities for electing directors. Share registrars should be forced to provide shareholder lists within two days of request.
For transparency, board members and employees of SEBON, NEPSE, CDSC, and Nepal Insurance Authority must submit their asset details to the Finance Ministry within fifteen days, while ensuring their current job benefits are not reduced. In the secondary market, a circuit breaker of fifteen percent should apply to companies with over five crore tradable shares, ten percent for companies with one to five crore shares, and five percent for those with less than one crore shares.
Promoting New Platforms, Bond Markets, and Legal Protection
Koirala suggested that listed investment companies should be allowed to invest fifty percent of their portfolio in margin-tradable shares. If listed companies fail to hold their AGM on time, their directors and CEO should face a personal fine of Rs. 1 lakh, which will go into the Settlement Guarantee Fund. He also recommended that SEBON approve guidelines submitted by NEPSE to start an SME platform for companies with less than fifty lakh ordinary shares, along with a separate startup platform.
Other key suggestions include creating a separate index for tradable ordinary shares, implementing the NEPSE-30 index immediately, and allowing investors to use an All or None (AON) option for trades up to 10,000 shares to lower brokerage costs. Finally, he recommended classifying brokers into full and commission brokers, forming a special court for securities offenses to stop other agencies from interfering in SEBON’s work, and creating an all-party task force under the Ministry of Finance to oversee all these capital market improvements.
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.
