Taxes are generally enforced on the profits or income of the companies and individuals. There are many types of taxes, the common ones being the income tax (levied on income) and the sales tax (levied on sales). Another type of tax is the Capital Gains Tax which would be discussed throughout the paper.
According to Burman (1999), a Capital Gains tax is the one that is levied on the Capital Gains of a company or any individual.1 Capital Gains refer to the profit that is earned due to the sale of a non-inventory asset which was bought at a fairly low price. These Gains may be earned due to the sale of assets like the stocks, the bonds and property etc. For example, if a person Mr. Edward Cullen buys some shares worth £2,500 n sells them for £12,500 then he makes capital gains worth £10,000. (12,500-2,500)
Campbell (1977) argues that Capital Gains have a lot of strategic importance2. This is because according to him, the business income alone does not prove to be sufficient for the motivation of investors. His study (1977) also shows that the investment in the US and other countries like France, Britain, and Germany has improved over the years due to the increase in the enthusiasm towards the Capital Gains3. However, the introduction of the Capital Gains tax is something that discourages companies and individuals. This is because the incidence of the tax means that the companies no longer enjoy the relatively newer and higher profits that they previously had. As a consequence, they may get discouraged by the tax and may try to sell the asset for a price that is lower than the price that is chargeable. Ultimately the Capital Gains earned by the companies and individuals may decrease and so will the eagerness towards investment through the sale of the non inventory assets. But all of this depends on the respective criterion of the government policies for the charging of the person and the