Laxmi Capital News
VAT on brokerage service charge scrapped

The government hasdecided to waive off value added tax (VAT) on brokerage service charge ontransaction of securities, ending the uncertainty over taxation of suchtransactions.

Through the FinancialBill for the upcoming fiscal year 2018/19, Minister for Finance, Yuba RajKhatiwada, included the brokerage service fee in the list of commodities andservices which is will be waived off from VAT. Not only the brokerage servicecharge has been a service excluded from the purview of VAT, the finance ministryhas also waived off all VAT liabilities of those brokerage firms whoseassessment were carried out by Inland Revenue Department.

Inland Revenue Officehad made VAT assessment of three brokerage firms last year after the Office ofthe Auditor General asked the government to recover outstanding tax debts fromthe brokerage firms, triggering protest from brokerage firms who even haltedtrading. They later withdrew their protest after the Ministry of Financeofficials pledged to address the issue through the upcoming budget. Claimingthat VAT was not the liability of brokerage firms but of customers, brokersfirms were reluctant to file VAT stating that they had not collected the fromthe end users.

Brokerage firms havehailed the government decision to list the brokerage service charge in thecategory of services excluded from VAT. “The government has finally heeded ourcall. The waiver has also ended the uncertainty over whether brokerage servicecharge attract VAT,” Priya Raj Regmi, the president of Stock BrokersAssociation of Nepal (SBAN). “The decision is a sigh of relief for us.”


There is also anannouncement in the budget speech that all manufacturing companies with thecapital of Rs 1 billion and above will have to convert themselves into publiccompanies and list their shares in the secondary market.

However, it is notclear whether the government will make such conversion mandatory or prod themto float their shares to the public through various incentives. By announcingthe new provision, the government has aimed to bring real sector companies inthe secondary market that is largely dominated by bank and financialinstitutions (BFIs). If the plan materializes, there will be more publicofferings from the real sector.

Private companies withcapital of Rs 500 million that are converting themselves into public companieswill get 10 percent income tax waiver for three years as an incentive to gopublic.

Similarly, thegovernment has also said that private equities, venture funds and hedge funds,among other new investment funds, will be brought into the capital market.



However, the governmenthas increased capital gains tax (CGT) by 2.5 percentage points to 7.5 percent.Stock investors are likely to feel the pinch because of the decision.

The decision meansinvestors gaining capital from share transactions will have to pay additionaltax now.According to analysts, the increment in CGT is likely to discouragefrequent trading of stocks in the market.

Source: MyRepublica, 2nd June 2018

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