Some comments on VAT, Brokers etc

Rajesh Sharma

My comments posted on Nepalese Investors' Bandstand, a Facebook Forum

June 30, 2017

1. If the brokers do not wish to damage the relation with the investors, they have to apologies and should open the market Sunday unconditionally. They could approach the tax office/Finance Ministry for negotiation and settlement. Or, they have to approach the court for dispute resolution and settlement.

July 02, 2017

1. The regulators should ask the brokers the legal ground for not operating in the market yesterday and should take stern action. Also, SEBON should start expanding the number of brokers by opening licence for new brokers and by providing licence to banks.

Finance Ministry should strictly prohibit unionism of brokers in the larger interests of the investors and national economy.

 Investors should start/continue mass actions/agitations /representations/filling case in the court etc, if regulators and brokers continue to harm the interest of the investors.

Overcoming fear is too difficult. Market is under the grip of fear now. By that time, when many small investors get rid of fear, they would have already lost millions together.

2. The brokers played rowdy Thursday. They may do again and again as their leadership seems a bunch of headless chickens. Neither they have professionalism, nor cool head, nor empathy. Hence, the strategic remedy is to expand the broker base by providing licence to new brokers and merchant banks.

Also, this is the right time to establish another stock exchange. This will bring competition resulting to better performance and will help expanding the capital market.

Let's lobby for:

a. Second stock exchange,
b, Broker licence to banks, and
c. Increasing the number of brokers by providing licence to new applicants.

3. Share Market and VAT (my limited understanding and perspective.)

3.1. In the market, there are a few people who believe that 13% VAT is applicable in the amount of entire transaction. This group is composed of lay persons and greedy share grabbers. Strange but it is happening here.

3.2. Some argue that VAT is applicable in the commission amount the brokers get but are confused who has to pay -brokers or investors.

3.3. Others are divided on the issue of nature of share business. Is this financial service as that of banks or is this value adding business like that of consultants. If this is financial service, no VAT is applicable and if it is value adding business, then VAT is applicable. The ambiguity in the law is a problem and that should be clarified first. This is an issue that affects the entire capital market community. Hence, all of us - SEBON, NEPSE, Brokers and Investors should plead with Finance ministry that Share Market transaction activities be classified as Financial Services. This will solve the problem of entire capital market community.

3.4. In case if VAT is applicable, by its nature and application, the end beneficiary of the value adding goods or services have to pay the VAT. And, sooner or later it will be collected from us - the investors. But, this is a very small amount which is 13% of the commission amount we pay to the brokers. This reality we have to acknowledge from today itself.

Hence, collective, by being all together, let's lobby for classifying the services in share market as financial services like that of banks. The brokers did foolish things last time, let's not do like that, but let's do something together for our collective good.