By Rusha Thapa

Bhaktapur. According to the law, no person or business is allowed to make a profit of more than 20 percent of the production cost of any goods or services. In other words, a product that costs Rs. 100 to produce can be sold for a maximum of Rs. 120. If a higher profit is charged, the law provides for both fines and imprisonment.

Banks, financial institutions, hydropower companies, insurance companies, and other firms have been issuing shares at Rs. 100 per unit. However, shares are currently being traded in the market at more than Rs. 2,600 per unit. A few years ago, some shares were traded at Rs. 3,200 to Rs. 5,000 per unit. This raises the question: Is trading a share issued at Rs. 100 for Rs. 2,600 considered black marketing or not? If it is, will any action be taken?

Another issue is that when shares are traded at Rs. 2,600, the government collects tax only on the profit. For example, if someone buys a share today for Rs. 2,600 and sells it three days later for Rs. 2,610, the government receives only one percent of the Rs. 10 profit as tax. In other words, the government receives just Rs. 1 in revenue from that Rs. 10 profit. If the share is sold for Rs. 2,590, the government receives no tax at all.

Since last Shrawan, the salaries of government employees have been increased. Through the budget for fiscal year 2083/84, the government increased employees' salaries by 21 percent. Along with government employees' salaries, pensions and the salaries of elected representatives have also been increased. Meanwhile, the monthly cost-of-living allowance has remained unchanged at Rs. 5,000.

The country remains on the Financial Action Task Force's grey list for money laundering concerns. Nepal was placed on the grey list on Falgun 9, 2081, and has not yet been removed from it.

If Nepal fails to get out of the grey list by the coming Magh, the country could potentially be placed on the blacklist. If that happens, Nepal could face serious difficulties in obtaining foreign loans and grants. Nepalis could also face greater difficulties in traveling abroad, while Nepalis living overseas could potentially face additional complications. The country is already caught in a debt trap. The previous government had accumulated Rs. 32 trillion in debt, and another Rs. 400 billion has reportedly been added since the government led by Balendra Shah, popularly known as Balen, came to power.

Government arrears are also piling up everywhere. The government reportedly owes Rs. 56 billion to construction entrepreneurs, Rs. 43 billion for health insurance, Rs. 24 billion for coronavirus insurance, and Rs. 7 billion to milk and sugarcane farmers.

At a time when the country is burdened with debt and unpaid liabilities, it is also suffering losses worth billions of rupees every year. The devastating flood that came through the Bhotekoshi area of Rasuwa on Bhadra 10 caused enormous loss of life and property. The flood reportedly killed thousands of people and caused damage worth billions of rupees to physical infrastructure. The government estimates that more than Rs. 800 billion will be required for the rehabilitation of flood victims and reconstruction of damaged infrastructure.

The Gen Z movement on Bhadra 23 and 24 last year also caused significant loss of life and property. Seventy-seven people lost their lives during the movement. Damage to government structures was estimated at Rs. 84.77 billion, while damage to private structures was estimated at Rs. 2.7 trillion.

Even one year after the movement, reconstruction of damaged government structures has still not begun. Government buildings, including the burned Singha Durbar, remain covered and unrepaired because the state does not have sufficient funds for reconstruction.

Meanwhile, Rs. 20 billion was spent on the House of Representatives election held on Falgun 21. Government debt continues to rise, while income has not increased sufficiently. Sources of income have been damaged in some places by floods and destroyed during the protests in others. In several sectors, the economy has also experienced a severe slowdown.

This has placed the state under significant financial pressure. With tax revenue failing to rise sufficiently, the economy is facing difficulties. So far, foreign loans, grants and remittances have helped sustain the country. But if Nepal is placed on the money-laundering blacklist, those sources could also become more difficult to access.

What will the government do then?

Many ordinary citizens, as well as banks and financial institutions, have suffered losses because of indiscriminate investment. Influenced by brokers and the promise of getting rich quickly, people invested heavily in real estate, vehicles and stocks without sufficient consideration.

Banks and financial institutions also extended trillions of rupees in loans against such assets. They failed to recognize that real estate, vehicles and stocks can be unproductive assets and that their prices can be artificially inflated.

Under the influence of brokers, some chairpersons, directors and employees allegedly took bribes and invested in such sectors. As a result, cooperatives collapsed, while problems have also emerged in the banking sector. When cooperatives collapse, millions of depositors suffer. If banks were to collapse, the consequences could be even greater.

On the other hand, if banks and financial institutions collapse, shareholders can also suffer losses. Under the law, shareholders receive dividends when their company makes profits. But if the institution collapses, shareholders can also lose their investments and must bear the resulting losses.

As the stock market continued to decline, a capital market reform action plan was recently introduced under the direction of Finance Minister Dr. Swarnim Wagle. Through the action plan, the tax revenue collected from stock transactions has effectively been reduced to almost zero. After the action plan was introduced, stock prices and trading volumes rose sharply.

However, many investors have viewed this period as an opportunity to sell their shares and exit the market. Investors in the market are saying, "This is the time to sell shares and get out. This is the opportunity."

In this way, older investors may sell their shares and exit with profits, while new investors who enter the market expecting profits could be left exposed to significant losses.

Former Finance Minister Yubaraj Khatiwada and former Prime Minister Baburam Bhattarai had previously described the stock market as a form of gambling. Some argue that recent developments have reinforced that perception.

The ironic issue is that the state itself appears to be encouraging the public to participate in this risky market. In the pursuit of tax revenue, the government could end up exposing ordinary citizens to financial losses.

As many as 8.367 million ordinary citizens have reportedly invested in the stock market. Banks have extended Rs. 168 billion in loans against shares as collateral. There are also reports of banks providing loans of up to Rs. 2,800 against 100 shares.

Similarly, millions of people have taken loans from cooperatives, microfinance institutions and banks by pledging shares, real estate and vehicles as collateral. Millions have also taken loans through informal high-interest lending arrangements. More than 500,000 people have reportedly already been blacklisted for failing to repay loans.

People who want to sell houses, land, vehicles and shares can be found everywhere in the market, but there are few buyers. This is because many people have realized that the prices of these assets may have been artificially inflated.

However, Finance Minister Wagle appears to be pushing to raise stock prices and potentially expose ordinary citizens to losses. It is also alleged that the Finance Minister and several other members of the current cabinet have investments in shares. Therefore, some may argue that they could also be interested in selling shares while prices are rising. Otherwise, whether share prices rise or fall should have little relevance to them.

Instead, should action not be taken against stock brokers who encourage people to take excessive risks and potentially suffer losses?

Therefore, the public should remain cautious. Do not invest simply because prices have risen. Think carefully before investing. Otherwise, there is a risk of suffering losses and regretting the decision later.

The media should also help raise public awareness about the risks associated with stock-market investment.