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Journalism of Courage
The finance ministry has released the second,revised version of its proposed direct tax code. The revised version is open to comments from the public which need to be sent in
before the end of the month continuing a process that has been commendably transparent. However,transparency,while valuable,doesnt always ensure efficiency. The new version of the DTC has diluted,considerably,the original attempt to ensure a clear and uniform set of rules with minimal exemptions,which only encourage gaming of the regulations by the more energetic and well-informed taxpayers.
Indeed,the entire approach to long-term investing shows a
certain unfortunate schizophrenia. Theres also the issue of the dilution of any difference in the incidence of taxation between long-term and short-term capital gains. This means that individual investors who choose to go in for the long term will suffer in comparison to institutional investors and we increase their incentives to think in the short-term rather than over longer,more value-driven horizons. It is certainly true that mutual funds,for example,are bulk movers of investment. Yet consider this: every time an individual adjusts their portfolio of shares,they might have to pay capital gains tax,but if theyd had a mutual fund doing it for them,the taxes wouldnt apply. The original purpose of this far-sighted reform was to make things easier for individuals to save,invest and pay their taxes. Is that purpose served by encouraging exemption-gaming,or by discouraging individual initiative?
