Nepal’s stock market witnessed a sharp decline on its first trading session following the announcement of the fiscal year 2083/84 budget, with the NEPSE index dropping more than 26 points. The sell-off erased recent gains as investors reacted negatively to several tax-related measures introduced in the budget.
Market participants pointed to the increase in capital gains tax as the primary reason behind the decline. Under the new budget, short-term investors who sell shares within one year will now pay a 10% capital gains tax, up from the previous 7.5%. Likewise, long-term investors holding shares for more than a year will face a 7.5% tax, compared to the earlier 5%.
Although the government provided a significant policy relief by declaring capital gains tax as a final tax—eliminating the possibility of additional personal income tax assessments on share trading profits—the increase in tax rates overshadowed the positive announcement in the eyes of many investors.
The budget also introduced several long-term reforms aimed at modernizing Nepal’s capital market. These include plans to allow Non-Resident Nepalis (NRNs) to participate in the secondary market, the gradual introduction of same-day trading (intraday trading), short selling, and derivative products, as well as improvements in market infrastructure and investor protection mechanisms.
However, analysts believe that investors focused more on the immediate impact of higher transaction costs rather than the long-term benefits. The prospect of increased market supply through future listings and new investment channels also encouraged some investors to remain cautious, reducing buying pressure in the market.
Today's decline was further influenced by profit booking, as many traders chose to lock in gains after several weeks of market growth. As a result, positive structural reforms announced in the budget failed to generate immediate enthusiasm on the trading floor.
Despite the short-term negative reaction, market experts believe the budget contains several reforms that could deepen Nepal’s capital market, improve liquidity, and attract broader participation in the coming years. Whether investors regain confidence will likely depend on how quickly these reforms are implemented and how the market adjusts to the new tax environment.
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