The tax with potential side effects
NEW DELHI, INDIA – JULY 23: Union Finance Minister Nirmala Sitharaman during Post Budget Press Conference at National Media Centre on July 23, 2024 in New Delhi, India. (Photo by Ajay Aggarwal/Hindustan Times via Getty Images)
Hindustan Times | Hindustan Times | Getty Images
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The big story
In 1696, King William III of England introduced a radically new tax on his subjects to raise state revenues: under the decree, every household in the country would pay a levy depending on the number of windows in their home. This typically meant that the larger the house, the greater the tax due on it.
Despite its progressive intentions, the tax failed to raise sufficient revenue for the monarch, as people boarded up their windows to lower their tax liability. Over the long term, the policy was a net negative for the state, which had to battle typhus, smallpox and cholera epidemics resulting from the lack of ventilation.
So, what does the window tax have to do with India today?
Property with bricked up windows in the exclusive area of Mayfair on 7th July 2023 in London, United Kingdom. Window tax was a property tax based on the number of windows in a house. It was a significant social, cultural, and architectural force in England during the 18th and 19th centuries. To avoid the tax, some houses from the period can be seen to have bricked-up window-spaces. The tax was introduced in 1696 and was repealed in 1851. (photo by Mike Kemp/In Pictures via Getty Images)
Mike Kemp | In Pictures | Getty Images
Earlier this week, India’s finance minister surprised markets with a measure she said will “deepen the tax base.”
Nirmala Sitharaman, delivering her seventh Budget, raised the tax on trading futures and options to 0.02% and 0.1%, respectively — marking a 60% hike. In addition, the minister also lifted capital gains for stock market investors who cash in within a year from 15% to 20%. Long-term investors will also pay a revised rate of 12.5% on gains, up from 10%.
Borrowing a page from 17th century England, India’s finance ministry hopes to enact a behavioral change with the levy and stamp out the “unchecked explosion” in the derivatives market, where retail investors account for 41% of total trading volumes.
What may become a cause of government concern is if stock market traders attempt to lower their tax burden, instead of weaning away from what has effectively become gambling and from its unintended negative consequences.
For now, the tax hikes appear to have overshadowed many positive developments arising from the Budget. Foreign investors have liquidated nearly $1 billion worth of Indian equities in the two days since the Budget was announced and traders have sent stocks lower every day so far since then.
“The lack of populist…
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