Capital taxes are levies imposed on the stock or value of capital assets held by businesses or financial institutions. In A-level Economics, understanding capital taxes is key to analyzing fiscal policy impacts on investment.

• These taxes target taxable capital, typically including shareholders’ equity, reserves, retained earnings, and long-term debt.
• They differ from capital gains taxes, which apply to profits realized from selling capital assets rather than the capital itself.
• Governments benefit from capital taxes as a reliable revenue source; however, they can raise the cost of holding capital, potentially discouraging investment and influencing broader economic behavior.