How Higher Corporate Taxes and Personal Capital Gains Can Impact Indian Investors


US President Joe Biden has proposed an increase in corporate taxes to fund his social spending program. In addition, he proposed an increase in the personal capital gains tax to 25 percent instead of 20 percent. While increasing corporate taxes will surely have an impact on corporate profits, the question for all retail investors is: will it impact me?

This could collapse in two ways, said Viraj Nanda, CEO of Globalise, adding that a further surge is expected in the markets, while investors will be affected by the development as well.

“If the planned social spending program puts more money in the hands of the public, markets could rise. Similar to COVID-19 when retail activity increased as people received their stimulus checks. Rising corporate taxes are also expected to lead to higher inflation and if valuation levels remain constant there could be a market correction. “

What changes can investors expect?

As part of the plan revealed, the corporate tax rate was proposed to increase from 21 percent to 26.5 percent. Foreign income of US corporations would also be taxed at a minimum rate of 16.6%, compared to the current 10%. But both of those rates are lower than Biden initially predicted – 28% for businesses and 21% for their foreign income.

As expected, the market reaction was grim to the news of a tax hike.

Nanda said further corrections are likely if the Biden administration’s proposal passes.

“However, this version of the tax rate changes has probably already been priced. Any further negotiation on the tax rate will only lead to a reduction and therefore a positive outcome for the markets.”

Regarding the increase in personal capital gains tax, Nanda said that Indian investors are not taxed on their capital gains in the United States, so there should be no direct impact on them.

However, he added that there could be some short-term pullbacks as a result of this announcement, which has likely already been incorporated, but the long-term market trajectory will continue to be positive.

Do investors need to make changes to their portfolios?

Long-term investors will not be affected in a major way and should avoid making drastic changes to their portfolios, Nanda said.

“With concerns about rising inflation, gold and other commodities could become safe havens and perform well as an asset class. Since inflation affects fixed cash flow more, staying in stocks could be beneficial in the face of subdued inflation. “

Disclaimer: The opinions and investment advice expressed by the investment experts on CNBCTV18.com are theirs and not those of the website or its management. CNBCTV18.com advises users to consult with certified experts before making any investment decisions.


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