Couldn’t find a Budget 2024 thread hence I have posted here
Recently, the Honourable Finance Minister tabled the Budget, which has received significant criticism. One major point of contention is the proposed uniform taxation on capital gains from equities, debt, real estate, and other assets. To understand why different taxation structures existed previously, we need to consider the key concept of “risk.”
For example, if someone buys company shares, a gold bar, and a house, even a layperson can see that the company’s shares have a risk of dropping to zero, whereas the other two assets do not. To attract investment in riskier assets, tax incentives were provided. As frequently reported in the news, substantial amounts of money have been flowing into the market during this bull run. The government wants to capitalize on this trend.
But is this fair? From a capitalist perspective, the answer is “Yes.” From a governmental standpoint, the answer is “No.” The government has a mandate to ensure smooth operations and implement policy reforms. In this case, the government appears opportunistic, hastily implementing new taxes and creating policy uncertainty. While such measures might be praised or accepted depending on political allegiance, haphazard taxation can drive away investors by creating investment uncertainty.
For context, consider the economic slowdown during 2017-2019 under BJP, and the scams from 2011-2014 under Congress.
Here are some possible outcomes of these policies:
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An external shock reduces liquidity, leading to a bear market.
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Economic slowdown stifles growth, resulting in a lackluster equity market.
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Market participants could form a voting block, demanding tax reductions (quite possible in India).
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This discontent could eventually lead to a change in the Finance Minister or even the government.
These scenarios are not listed in any specific order or timeline but represent potential consequences of the taxation policies.
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