February 2: Investors operating companies in Nepal say they are at the receiving end due to double taxation on profit.

Especially, investors (institutional and general shareholders) of public companies are hit hardest by the double taxation policy.

Shareholders and investors themselves do not have to pay taxes twice. However, their return from investment is taxed twice. As a result, investors and shareholders have been complaining that they are suffering from double taxation.

Shareholders and investors have long demanded a one-time tax on income. However, the concerned bodies have been ignoring this demand from the very beginning.

Companies first pay an income tax of 25 percent to 30 percent of their profits. Banks and financial institutions, as well as companies that produce hazardous items like cigarettes and alcohol, pay up to 30 percent of their profits as income tax.

Companies of other natures have been paying income tax up to 25 percent. The shareholders have been paying an additional 5 percent tax even after distributing the remaining net profit as  dividend. As a result, the shareholders and investors argue that they are affected by double taxation on the same income.

Once a tax has been paid, it should not be subject to taxation again. However, the government has been raising taxes on companies in a way that is not acceptable to them, said one investor.

"The company will make a profit from the investor's investment. And, that profit belongs to the investor,” he said. Accordingly, there is no justification for levying tax when distributing post-tax profits as dividends,” he added.

Investors of banks and financial institutions have been hit even harder, he further said. 

Raju Prasad Pyakurel, information officer of the Inland Revenue Department, argues that this arrangement is right from every point of view.

He says the theoretical side of the economy, international practice, Nepal's law, and practice are also justifiable.

‘First, the tax paid by the company has become the tax paid by the company itself from its income. After that, the shareholders will have to pay tax for the dividend,” he said, adding, “Therefore, this arrangement is justifiable.”

Advocate Jyoti Dahal, a scholar on stocks, also said that the provision was legal and practical.

The company has paid income tax, and the shareholders have paid profit tax. Therefore, this tax system is one-sided in which the shareholders are not affected by double taxation, says Dahal. “So the shareholders have to accept it naturally,” he opined.