Question

Should capital income be subject to personal taxation? There are arguments for and against its inclusion in the personal tax base. In all cases, the arguments center around three issues: equity, efficiency and administrative complexity. Your task is to evaluate the merits of excluding capital income from the personal tax base in light of these three issues.

Answer 1

Capital gains or income are the revenue earned by a individual by investing his/ her money which is sold or gained higher return than the investment.

If a individual person invest in any form of investment instruments and after a certain period he will get return from that investment.

Exclusion of capital income from personal tax. Capital income not something that is fixed there are possibility of not having gain in return of investment. Sometimes investment giv s ownership to that person.

Sometimes it is for long term and return earned in future so that cannot include in the present tax .

There is no efficiency in getting return higher than the investment in the beginning .

Equity investment gives ownership to the investor .

It's difficult to decide whether there is profit or loss or there is a situation of no loss or profit in future as the capital income is not a income which is earned every month. Investment gives you return after a certain period of time. Do it's difficult for administration to decide and calculate the tax .

Excluding capital income from personal tax gives benefits of tax exemption on the income earned by the person on Risking his hard earned money on some investment instruments. It's easier to calculate the tax return by auditor.