Document Type : Research Paper

Authors

• JAWAD REZAEI ¹
• Mahmood Bagheri ²

¹ PhD Student in International Trade and Investment Law, University of Tehran, Tehran, Iran

² Associate Professor, Department of Private and Islamic Law, University of Tehran, Tehran, Iran

Abstract

Capital gains tax is one of the major tax bases that governments, by invoking tax justice, increasing tax revenues, redirecting capital from non-productive assets such as real estate to productive assets such as shares in manufacturing companies, and combating speculation, explicitly provide for in their tax laws and levy on the profits arising from the sale of capital assets, calculated relative to their acquisition time.It is of paramount importance that the relevant legislation take into account the economic considerations associated with this subject. One of the most critical considerations is inflation, which merely leads to a nominal increase in the value of assets. This study, conducted through a library-based and descriptive-analytical method and with reference to theories of distributive justice, examines the question of whether capital gains should be adjusted for inflation for tax purposes. The research concludes that in the presence of inflation—particularly in countries with underdeveloped financial markets—if capital gains tax is imposed on nominal rather than real gains, it will result in economic lock-in effects, reduced incentives to save, violations of theories of justice, and ultimately capital flight. Such outcomes are inconsistent with the efficiency objectives of tax policy and impose significant burdens on a nation’s economy.

Keywords

• Capital gain
• Tax
• Inflation
• Tax Justice
• Theories of justice

Main Subjects

• Public Law