The safest investment in the country has been threatened by a bureaucratic financial system. In fact, there are numerous factors to consider prior to deciding whether individuals and investors should be liable for this type of taxation.
First off, we should consider prevailing market interest rates in determining if in fact a real-estate transaction is actually a capital gain. Consider a hypothetical scenario in which a 5 year fixed deposit yields 13% per annum. Suppose during the same time period, a real estate investor holds a property for 5 years and obtains a slightly higher return.
Now think this through: Why should the real-estate investor have to pay tax on the full capital gains income i.e. the selling price minus the purchase price? And what is the opportunity cost? Should the income foregone on a 5 year fixed deposit not be attributed in calculating the holding period return of the investment?
In a real world scenario, most tax consultants would neglect to consider the foregone interest income, and you would be taxed fully on the capital gain. Perhaps a bit more easing would help.
Maybe tax the investor only on 50% of the capital gain realization? Certain developed countries practice taxing only a portion of capital gains, while simultaneously encouraging real-estate investments. This method would avoid having to forego losses in government revenue.
Arbitrage of taxation is a key financial goal for an individual or an enterprise. This does not mean avoidance of tax, but rather minimizing it through tax reduction strategies.
However, the greater challenge may be implementing the new tax policies. We can only imagine the chaos once enacted, when it is bound to be repealed in a short time period.
