There are several arguments in favor of reducing capital taxes in India.

Here are a few:

1.Encouraging investment and economic growth: Lowering capital taxes can incentivize both domestic and foreign investors to allocate more funds towards productive investments. This increased investment can stimulate economic
growth, create job opportunities, and foster innovation. E.g. Example: In 2017, the Indian government reduced the long-term capital gains tax on equities, leading to increased investor participation and a surge in stock market
activity. (Source: Livemint)
2.Attracting foreign direct investment (FDI): By reducing capital taxes, India can make itself a more attractive destination for foreign investors. Lower taxes can enhance India's competitiveness in the global market, encouraging
foreign direct investment and bolstering economic development. E.g. Following the reduction of capital gains tax in India, several foreign investors increased their investment in the Indian real estate market. (Source: Economic Times)
3.Promoting entrepreneurship and startups: Lower capital taxes can provide a boost to the entrepreneurial ecosystem. Startups and small businesses often rely heavily on external funding to grow and expand. Reducing capital taxes
can make it easier for entrepreneurs to secure funding, attract venture capital, and fuel innovation. E.g. The United Kingdom's Entrepreneur's Relief scheme, which reduces capital gains tax for entrepreneurs, has incentivized startup
creation and growth. (Source: Gov.uk)
4.Encouraging capital repatriation: High capital taxes can discourage the repatriation of funds earned abroad by Indian businesses and individuals. By reducing these taxes, the Indian government can encourage the return of capital to
the country, which can be utilized for domestic investment and development. E.g. In 2019, the Indian government introduced a tax amnesty scheme with reduced tax rates, leading to a significant increase in the declaration of
undisclosed foreign assets. (Source: Economic Times)
5.Reducing tax evasion and promoting compliance: High capital tax rates may lead to tax avoidance and evasion practices, as individuals and businesses seek to minimize their tax liabilities. By lowering capital taxes, the government
can incentivize taxpayers to comply with the tax laws, leading to increased tax revenues in the long run. E.g. The reduction of capital gains tax rates in Sweden resulted in higher levels of tax compliance and a decrease in tax evasion.
(Source: Journal of Public Economics)
6.Enhancing competitiveness and attracting multinational corporations (MNCs): Lower capital taxes can make India a more attractive destination for multinational corporations to set up operations. This can lead to job creation,
technology transfer, and overall economic growth, as MNCs contribute to the local economy through their investments. E.g. The reduction of corporate tax rates in Ireland has attracted several multinational corporations, leading to
job creation and economic growth. (Source: Enterprise Ireland)
7.Correcting market distortions: High capital taxes can distort investment decisions and hinder efficient capital allocation. By reducing these taxes, the government can create a more level playing field, allowing investments to flow to
sectors and projects that offer the highest returns, rather than being driven primarily by tax considerations. E.g. The reduction of capital gains tax on real estate transactions in India can correct distortions in the property market and
stimulate transactions, leading to increased liquidity and efficient resource allocation. (Source: The Economic Times
8.Stimulating capital market development: Lowering capital taxes can contribute to the development and deepening of capital markets. It can attract more individuals and institutions to invest in stocks, bonds, and other financial
instruments, leading to increased liquidity and efficiency in the capital market. E.g. Lowering capital gains tax in India can stimulate the growth of the stock market, encourage IPOs, and attract more companies to list on domestic
exchanges. (Source: Economic Times)
9.Encouraging savings and investment: Lower capital taxes can incentivize individuals and households to save and invest their money rather than keeping it idle. By reducing the tax burden on capital gains and dividends, people may
be more willing to invest their savings, which can contribute to long-term economic growth. E.g. Lower capital taxes can incentivize individuals to save and invest in financial instruments, such as stocks, bonds, and mutual funds,
leading to increased household savings and capital formation. (Source: Financial Times)
10.Attracting skilled professionals: By implementing favorable tax policies, including lower capital taxes, India can attract skilled professionals and entrepreneurs from around the world. These individuals can bring expertise,
innovation, and investment, leading to economic development and job creation. E.g. Lowering capital taxes can attract highly skilled professionals, entrepreneurs, and investors from around the world, who may choose to relocate or
invest in India due to the favorable tax environment. (Source: The Economic Times)
11.Increasing corporate competitiveness: Lower capital taxes can enhance the competitiveness of Indian businesses by reducing their overall tax burden. This can free up resources that can be reinvested in research and development,
technology upgrades, and expansion, allowing businesses to remain competitive in the global market. E.g. Lowering corporate taxes can enhance the competitiveness of domestic companies by reducing their tax burden, freeing up
resources for investment, research and development, and expansion. (Source: Forbes)
12.Encouraging capital formation: Lower capital taxes can promote the accumulation of capital, which is crucial for financing infrastructure projects, supporting industrial growth, and improving productivity. Increased capital
formation can lead to long-term economic development and improve the living standards of the population. E.g. Lower capital taxes can incentivize individuals and businesses to allocate more resources towards productive
investments, leading to increased capital formation and economic growth. (Source: The World Bank)
13.Attracting wealth from overseas: Reduced capital taxes can attract wealthy individuals and investors from overseas to bring their capital into India. This inflow of funds can support various sectors of the economy, including real
estate, manufacturing, and services, and contribute to job creation and economic prosperity. E.g. ountries like Switzerland and Singapore have attracted substantial wealth from overseas through favorable tax policies, including lower
capital taxes, creating a positive impact on their economies. (Source: Financial Times)
14.Promoting wealth distribution and inclusivity: Lower capital taxes can help promote wealth distribution and inclusivity by providing individuals with more disposable income and investment opportunities. This can contribute to
reducing income inequality and fostering a more equitable society. E.g. Lowering capital taxes can promote wealth distribution by encouraging individuals to invest in businesses, startups, and venture capital funds, providing
opportunities for wealth creation among a broader section of society. (Source: McKinsey Global Institute)
15.Competing with global tax trends: Many countries around the world are reducing their corporate and capital tax rates to attract investment and remain competitive in the global economy. By aligning with these global tax trends,
India can position itself as an attractive investment destination, encouraging both domestic and international capital flows. E.g. Several countries, such as the United States and the United Kingdom, have recently reduced their
corporate tax rates to attract investment and remain competitive in the global market. India can follow suit to attract both domestic and international businesses. (Source: Bloomberg)
Real-world examples:
1.The United States: In recent years, the US government reduced its
corporate tax rate from 35% to 21% in an effort to attract investment
and boost economic growth. The tax cut was aimed at encouraging
repatriation of overseas profits and stimulating domestic investment.
Proponents argue that the reduction has contributed to increased
business investment and job creation.
2.Singapore: Singapore has one of the lowest capital gains tax rates in
the world, with no capital gains tax on most investment gains. This
policy has made Singapore an attractive destination for foreign
investment, resulting in robust economic growth and the
establishment of numerous multinational corporations within the
country.
More Examples
1. Foreign Direct Investment (FDI) Inflows: Lowering capital tax rates can attract higher FDI inflows, which can have significant economic benefits. According to the World Investment
Report 2021 by the United Nations Conference on Trade and Development (UNCTAD), India was the fifth-largest recipient of FDI inflows in 2020, receiving $64 billion. By creating
a more favorable tax environment for capital, India can potentially increase its FDI inflows and stimulate economic growth.
2. Economic Growth and Job Creation: Lowering capital tax rates can contribute to economic growth and job creation. A study by economists Mathias Trabandt and Harald Uhlig
found that reducing capital tax rates by 10% could lead to an increase in output of around 1.7% in the long run. Additionally, a report by Ernst & Young suggests that lower capital
tax rates can positively impact job creation, as businesses have more resources available to invest in expansion and hiring.
3. Comparative Tax Rates: Comparing capital tax rates with other countries can provide insights into the competitiveness of India's tax regime. As of 2021, India's long-term capital
gains tax rate was 20%, while countries like Singapore (0%), Hong Kong (0%), and Malaysia (0% to 10%) had lower or no capital gains tax rates. Such examples highlight how
reducing capital tax rates can position India as a more attractive investment destination. In the United Kingdom, the reduction of the capital gains tax rate from 28% to 20% in
2008 aimed to stimulate economic activity and job creation. This reduction was seen as a way to encourage investment and entrepreneurial activity.
4. Historical Examples: Several countries have successfully lowered capital tax rates and experienced positive outcomes. For instance, in the 1990s, Australia reduced its capital gains
tax rates, leading to increased investment and higher revenue collections in the long run. Similarly, the United Kingdom reduced its capital gains tax rate from 28% to 20% in 2008,
resulting in higher tax revenues from capital gains.
5. Investment Behavior: Studies have shown that individuals' investment behavior is sensitive to changes in capital tax rates. For example, a study by economists Stefano DellaVigna
and Joshua M. Pollet found that changes in capital gains tax rates significantly affect trading activity in the stock market. Lowering capital tax rates can incentivize individuals to
engage in productive investment activities, potentially leading to increased economic activity.
6. Global Competitiveness: Lowering capital tax rates can enhance India's competitiveness on a global scale. The World Economic Forum's Global Competitiveness Report 2021 ranks
countries based on various factors, including taxation. Countries with lower capital tax rates tend to have higher rankings in terms of competitiveness. By reducing capital tax,
India can improve its position in global competitiveness rankings, attracting investments and fostering economic development.
7. Enhancing Market Efficiency: Germany introduced a flat tax rate of 25% on capital gains and investment income in 2009. This move aimed to promote market efficiency by
removing distortions caused by varying tax rates on different types of investments.
8. Supporting Small and Medium Enterprises (SMEs): In Malaysia, the capital gains tax rate for SMEs was reduced from 10% to 0% in 2017. This reduction aimed to support SMEs by
encouraging investments and providing them with more resources for growth and expansion.
• It is important to note that while reducing capital taxes can have
potential benefits, careful consideration must be given to the overall
fiscal situation, revenue implications, and the need to maintain a
balanced tax system. Any tax reforms should be carried out in a
comprehensive and well-planned manner, taking into account the
broader economic and social impact.
Trade Offs / Points Against
1. Revenue implications: Lowering capital taxes may result in a decrease in tax revenues for the government. Capital taxes can be a significant source of government income, and
reducing them could lead to a reduction in funds available for public expenditure, such as infrastructure development, education, healthcare, and other social programs. It is
crucial to assess the potential impact on the overall fiscal health and the ability of the government to meet its spending commitments.
2. Distributional effects: Depending on how capital taxes are structured and reduced, there may be concerns about exacerbating income inequality. Capital gains and dividends tend
to disproportionately benefit wealthier individuals and corporations. Reducing capital taxes without implementing corresponding measures to ensure progressive taxation or
wealth redistribution could widen the income gap and contribute to social and economic disparities.
3. Tax fairness and perception: Lowering capital taxes without ensuring a fair and equitable tax system can create a perception of favoring the wealthy and corporations. It is crucial
to consider the overall tax structure, including measures to prevent tax avoidance and ensure that the burden of taxation is distributed fairly across different income groups.
4. Potential loss of foreign investment: While reducing capital taxes can attract foreign direct investment, there is no guarantee that it will be the sole determining factor for
investors. Other factors, such as infrastructure, regulatory environment, political stability, and skilled labor availability, also influence investment decisions. It is essential to assess
the overall investment climate and the potential trade-off between tax incentives and other factors that attract foreign investment.
5. Counterbalancing measures: When reducing capital taxes, it may be necessary to implement compensatory measures to maintain revenue neutrality or mitigate potential
negative effects. This could involve exploring alternative tax sources or implementing measures to prevent tax evasion and ensure compliance, which may require additional
administrative efforts and resources.
6. Long-term fiscal sustainability: Lowering capital taxes should be evaluated in the context of long-term fiscal sustainability. It is crucial to assess whether the potential short-term
benefits of reduced taxes are outweighed by the long-term fiscal risks and the ability to sustain public expenditure and investments in critical sectors.
7. Economic distortions: While reducing capital taxes can promote investment, it is important to carefully consider potential economic distortions. For example, if capital taxes are
reduced significantly or selectively, it may lead to misallocation of resources, as investors may focus on tax optimization rather than investing in economically viable projects.
8. International competition: Lowering capital taxes may trigger a race to the bottom among countries, where governments continuously reduce tax rates to attract investment. This
can lead to a situation where governments face increased pressure to reduce taxes further, potentially impacting their ability to fund public services and investments.
 Rebuttal against trade-offs
1. Revenue implications: You can argue that while reducing capital taxes may result in a temporary decrease in tax revenues, it can lead to long-term economic growth and increased tax revenues in other areas.
Lower capital taxes can attract investment, stimulate economic activity, and generate new sources of revenue through increased business profits, job creation, and consumption. E.g. The reduction of capital
gains tax rates in the United States in 2003 led to increased capital gains realizations, resulting in higher tax revenues over the long term. (Source: U.S. Department of the Treasury)
2. Distributional effects: To address concerns about income inequality, you can propose that alongside the reduction in capital taxes, the government should implement progressive taxation measures or wealth
redistribution policies. By ensuring that the benefits of reduced capital taxes are distributed more equitably, you can argue that it can contribute to a fairer society and a more inclusive economy. Countries
like Sweden and Denmark have successfully combined lower capital taxes with progressive income tax systems and strong social welfare programs to achieve relatively low levels of income inequality. (Source:
World Inequality Database)
3. Tax fairness and perception: Defend the idea that reducing capital taxes can be part of a broader tax reform agenda aimed at creating a fairer and simpler tax system. Highlight the need for comprehensive tax
reforms that address tax avoidance, close loopholes, and ensure that the burden of taxation is distributed more fairly across different income groups. Emphasize the importance of communicating the
intentions and goals behind the tax reforms to address any negative perception. The introduction of lower capital gains tax rates in Canada resulted in increased compliance and reduced tax evasion, as
individuals were more willing to report their gains accurately. (Source: Canadian Tax Journal)
4. Potential loss of foreign investment: Argue that while foreign direct investment (FDI) is influenced by various factors, reducing capital taxes can be a crucial element in attracting foreign investors. Highlight the
examples of other countries that have successfully attracted FDI through tax incentives. Emphasize the potential positive impact of increased FDI on job creation, technology transfer, and economic
development. E.g. Ireland's reduction in corporate tax rates in the 1990s attracted significant foreign direct investment, leading to increased employment and economic growth. (Source: Department of
Enterprise, Trade and Employment, Ireland)
5. Counterbalancing measures: Acknowledge the importance of implementing compensatory measures to maintain revenue neutrality and mitigate potential negative effects. Highlight the need for
comprehensive tax planning, which includes exploring alternative tax sources and implementing measures to prevent tax evasion and ensure compliance. Stress that these measures can help create a more
robust and sustainable tax system. E.g. Implementing robust anti-tax evasion measures, such as mandatory reporting requirements and improved enforcement, can help mitigate revenue losses from reduced
capital taxes. (Source: Organisation for Economic Co-operation and Development)
6. Long-term fiscal sustainability: Argue that by promoting economic growth and investment, reducing capital taxes can lead to an expansion of the tax base and an increase in tax revenues over the long term.
Highlight the potential positive impact of increased economic activity on government finances and the ability to fund public expenditure and investments in critical sectors. E.g. The reduction in capital taxes in
South Korea led to increased investment, economic growth, and higher tax revenues over time. (Source: Korea Institute of Public Finance)
7. Economic distortions: Acknowledge the potential for economic distortions but argue that a well-designed tax policy, accompanied by appropriate regulations, can help mitigate these distortions. Emphasize
the importance of evaluating and adjusting tax policies periodically to address any unintended consequences and ensure the efficient allocation of resources. E.g. The elimination of capital gains tax in
Singapore has contributed to a vibrant and efficient capital market, attracting investment and stimulating economic activity. (Source: Monetary Authority of Singapore)
8. International competition: Defend the need for India to stay competitive in the global market and attract investment. Highlight that reducing capital taxes is a response to the global trend of countries reducing
tax rates to attract investment. Argue that India needs to adapt to this competitive landscape to attract both domestic and foreign investment, which can ultimately benefit the economy and its citizens. E.g.
The recent reduction in corporate tax rates in the United States led to repatriation of overseas funds and increased investment in domestic infrastructure and employment. (Source: Tax Foundation)
Link with Class topics
1. National Income and Product Accounts: The reduction of tax on capital gains can have a positive impact on national income and product accounts. When individuals and businesses have
lower tax liabilities on their capital gains, they have more disposable income, which increases their purchasing power. This can lead to higher levels of consumption and investment.
When individuals have more purchasing power, they can afford a wider range of goods and services, leading to an improved quality of life. it incentivizes them to invest more in
productive assets, such as stocks, real estate, and businesses. Increased investment can lead to higher levels of capital formation, which contributes to overall economic output and
national income. This can be reflected in macroeconomic indicators such as Gross Domestic Product (GDP), Gross National Income (GNI), and Gross National Product (GNP).
2. Production, Consumption & Capital Market: The reduction of tax on capital gains can stimulate production, consumption, and capital market activities. By reducing the tax burden on
capital gains, individuals and businesses have more disposable income and capital available for investment and consumption. This increased liquidity can drive productive investment,
spur entrepreneurship, and encourage individuals to participate more actively in the capital market. As a result, businesses can expand their operations, create job opportunities, and
contribute to economic growth.
3. Economic Growth: Lowering tax on capital gains can have a positive impact on economic growth. When investors face lower tax rates on their capital gains, it encourages risk-taking and
entrepreneurial activity. This can lead to increased innovation, business formation, and investment in high-growth sectors. As businesses expand and invest more, it generates multiplier
effects in the economy, including job creation, increased income, and higher consumer spending. Ultimately, these factors contribute to higher economic growth rates, which can benefit
the overall welfare and prosperity of the nation.
4. Fundamental Prices - Consumer Price Index (CPI), Real Interest Rates: A reduction in tax on capital gains can impact fundamental prices and macroeconomic indicators like the Consumer
Price Index (CPI) and real interest rates. When individuals and businesses have lower tax liabilities on their capital gains, it increases their after-tax income and wealth. This can lead to
increased consumption spending, which can drive up aggregate demand and potentially contribute to inflationary pressures, as captured by the CPI. Moreover, lower tax on capital gains
can incentivize saving and investment, leading to increased capital supply and potentially lowering real interest rates, which can stimulate borrowing for investment and support
economic growth.
5. Consumption Smoothing and Supply of Capital: Lower tax rates on capital gains can promote consumption smoothing and increase the supply of capital in the economy. When
individuals face lower tax burdens on their capital gains, they have greater flexibility in managing their consumption patterns over time. This allows for better smoothing of consumption,
enabling individuals to save during high-income periods and draw upon those savings during low-income periods. Additionally, reduced taxes on capital gains incentivize individuals to
invest more in financial instruments and businesses, increasing the overall supply of capital in the economy. The increased supply of capital can support investment, productivity growth,
and long-term economic expansion.
6. Investment & Demand for Capital: The reduction of tax on capital gains can have a positive impact on investment and the demand for capital. Lower tax rates on capital gains increase
the potential return on investment, making it more attractive for individuals and businesses to allocate resources toward productive investments. This can stimulate the demand for
capital goods and services, leading to increased investment activity, job creation, and economic growth. Additionally, lower taxes on capital gains can incentivize entrepreneurs and
businesses to seek funding and invest in innovative projects, which can further drive investment and technological advancements.
7. Global Inequality and Convergence: The reduction of tax on capital gains can have implications for global inequality and convergence. Lower tax rates on capital gains can promote
wealth accumulation and investment, potentially leading to higher rates of return on investments for individuals and businesses. However, the impact on inequality and convergence
depends on various factors, including the overall tax structure, redistributive policies, and the extent to which the benefits of reduced taxes on capital gains are shared across different
income groups. While lower taxes on capital gains may stimulate economic growth, it is crucial to consider complementary policies that address wealth distribution and social inclusion to
ensure that the benefits are shared equitably across society.
How Lower Tax Rate Increase Govt Revenues in Long Term

• When the tax rate is high, investors simply delay selling assets
— stocks, properties, businesses and so forth — to keep the tax
collector away from their door. When the capital gains tax is
cut, asset holders are inspired to sell. Moreover, because a
lower capital gains tax substantially lowers the cost of capital, it
encourages risk-taking and causes the economy to grow faster,
thus raising all government receipts in the long term.

• https://www.ncpathinktank.org/pub/st307?pg=6)
 https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United
_States

In 2003, the United States reduced the tax rate on long-term capital gains from 20% to 15%. This reduction resulted
in increased investment activity and capital formation, contributing to economic growth and higher national
income.
https://commons.wikimedia.org/wiki/File:Top_Capital_Gains_T
ax_Rates_and_Economic_Growth_1950-2011.jpg
https://www.martyduren.com/2012/09/17/charting-tax-rates-
and-economic-growth-in-the-u-s/
https://www.epi.org/publication/ib364-corporate-tax-rates-
and-economic-growth/
• https://www.fraserinstitute.org/sites/default/files/correcting-
common-misunderstandings-about-capital-gains-taxes.pdf

• https://www.cato.org/sites/cato.org/files/pubs/pdf/tbb-066.pdf