The Inland Revenue Department has initiated an investigation into potential capital gains tax evasion in the Over-the-Counter (OTC) market operated by the Nepal Stock Exchange Limited (NEPSE). NEPSE stated that since the OTC market prices are determined through mutual agreement between buyers and sellers, it is challenging to ensure that sellers are paying capital gains tax based on the actual value.
Ram Prasad Acharya, Director General of the Department, explained that they are verifying whether taxpayers who traded securities of companies not listed on NEPSE have filed taxes on the income earned from such transactions. He clarified that complaints have been received regarding inadequate records of actual OTC transactions, prompting further verification.
Murahari Parajuli, NEPSE's information officer, noted that the share price of companies traded in the OTC market must not be lower than the actual per-share net worth of the company. This regulation minimizes the possibility of underreporting the transaction value to evade taxes, although it cannot be entirely ruled out.
According to Parajuli, NEPSE only grants approval for transactions after buyers and sellers agree on a price in accordance with regulations and submit the tax-paid invoice to NEPSE. Under the Income Tax Act, individuals conducting profitable OTC trades are required to pay 10% capital gains tax, while domestic institutions must pay 15%. Foreign individuals and institutions involved in OTC trades are subject to a 25% capital gains tax.
Parajuli stated that, while no direct evidence of tax evasion has been observed in OTC trades so far, NEPSE will fully cooperate with the Department of Inland Revenue’s investigation. NEPSE developed the OTC market concept and launched it in 2008. As per the Office of the Company Registrar's records, the OTC market has facilitated share trading of unlisted companies, delisted companies, and public companies that do not meet the listing requirements, since February 2016.
According to NEPSE, a total of 244 companies have been registered and traded in the OTC market till date. In the fiscal year 2023/24 alone, NEPSE recorded over 30.65 million units of securities worth more than Rs 5.04 billion in the OTC market. Last year, WorldLink Communications shares saw the highest trade volume, with 13,392 shares changing hands, followed by Kathmandu Forestry College, with 277 shares traded, and 500 shares transacted at Rs 1,085.85 per share in the market.
