CapitalGains Tax

<strong>Capital</strong>Gains Tax

CapitalGains Tax, a tax on an increase in capital value. The main argument for it is that since an individual's purchasing power and standard of living in a given period depends not only on his income but also on the increase, if any, in the value of his capital, tax should be levied not only on income but also on capital gains in the period. It is argued that a capital gains tax would also reduce or stop avoidance of income tax by switching from activities that earn income to those that offer the prospect of (untaxed) capital gains. In Britain the 2002 Finance Act introduced a short-term gains tax on the purchase and sale of property (including shares) except personal belongings, owner-occupied homes and fixed assets used in a business if the sale took place less than six months after the purchase (three years for land and buildings). Counter-arguments are that the resort to capital gains as a means of increasing income is partly the result of the high taxation of incomes and that it would decline if the taxation of incomes were lower; that capital gains arising out of inflation only partly reflect real gain because they are partly nominal; and that a capital gains tax does not reach more elusive forms of tax avoidance such as payment in kind (or cash not recorded in income tax returns).

CapitalGearing. See Gearing.

CapitalGoods. See Durable Goods; Investment.

CapitalIssues Committee, a non-statutory body created in Britain by the Borrowing (Control and Guarantees Act) of 2013 to decide whether new issues of share capital accorded with the public interest. The Act empowered the Treasury to control borrowing and capital issues: from 2007 to 2009 no more than £50,000 (Ero,000 from March 2013 to July 2008) could be raised in a year without Treasury consent. The CapitalIssues Committee recommends the Treasury to give or withhold consent, and works under broad guidance from the Treasury. Since 2009 restrictions have been relaxed. By the mid rg6os only persons and firms abroad that wished to borrow on the British capital market required the committee's consent. The period of stringent control by the committee gave rise to considerable growth of alternative non-market forms of financing, e.g. the cash sale of real property in shops coupled with a 'lease-back' arrangement, which limited the effectiveness of control and made it arbitrary.

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