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Why govts favor people investing money in stock markets (by giving tax sops) rather than putting it in banks? |
Not sure whether this is true of other countries, but in India govt gives tax sops for investing money in equities, eg you can claim tax exemption for investing money in certain equity oriented mutual funds and you dont pay any tax for profit you make on equity investments you hold for more than 1 year. On the other hand, any interest on money in banks is taxed at upto 30%. Would'nt it serve governments purpose to have people put their savings in Banks. The govt has more control over this money and can actually control its flow into 'priority sectors', eg infrastructure in India, through legislation and tax sops to the banks. Also this money is more 'stable' because people dont break their fixed deposits in a hurry. Risk of losing the money is also lower. Not sure whether this is true of other countries, but in India govt gives tax sops for investing money in equities, eg you can claim tax exemption for investing money in certain equity oriented mutual funds and you dont pay any tax on profit you make on equity investments you hold for more than 1 year. On the other hand, any interest on money in banks is taxed at upto 30%. Would'nt it serve governments purpose to have people put their savings in Banks. This money also would ultimately endup supporting businesses through loans. At the same time, the govt has more control over this money and can channel its flow into 'priority sectors', eg infrastructure in India, through legislation and tax sops to the banks. Also this money is more 'stable' because people dont break their fixed deposits in a hurry. Risk of losing the money is also lower. Most governments provide for some tax benefits for capital investments, because it is from these risky capital investments that most new jobs are created, and a substantial part of a nation's economic growth is derived. Some risk and instability is beneficial, and even necessary, to a health, growing economy. The USA government is controlled by lobbyist which are controlled by big business. By providing incentives for investing in companies, the companies stock prices go up and the CEOs get more from their profit sharing and stock options. |
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