There is a simple principle that has underpinned sensible investment taxation almost everywhere: you pay tax when you actually make money—that is, when you sell an asset and pocket the proceeds.
The gain must be real, not merely a number on a screen, before the government arrives to take its share.
The Netherlands is now proposing to abandon this principle.
Starting in 2028, the Dutch government plans to levy a 36% tax on investment returns, including unrealised gains—the increase in the value of shares, bonds and other assets that investors still hold and have not sold.
If you buy shares for €100 and they are worth €130 at the end of the year, you would owe tax on the €30 gain, even though that profit exists only on paper and could easily vanish the following year.
Policy shift
The Dutch government has a particular reason for this unusual step.
Their Supreme Court struck down the earlier system, which taxed a notional return on investments regardless of what investors actually earned.
Strangely, the new system is intended as a correction toward taxing “actual” returns.
Good intentions, however, do not make the outcome less problematic. What has produced—under judicial compulsion and apparently with a straight face—is a mechanism that may force investors to sell assets simply to fund tax bills on gains that have not actually been realized.
Ideological push
The broader concern is not the Dutch policy alone, but the trend it represents.
Spend time in any corner of social media where economics is debated and you will encounter a growing community of neo-socialists who have arrived at a remarkable conclusion: socialism did not fail—it was simply never implemented properly.
In this narrative, the Soviet Union, Maoist China and Cuba were merely flawed attempts at what is fundamentally a sound idea.
The right people, armed with modern technology and the right intentions, will supposedly get it right this time.
Within this worldview, taxing paper gains is not seen as overreach but as an obvious act of justice. The rich are simply too rich; their wealth—even the theoretical kind—is viewed as an affront that the state should correct.
The notion that market value represents real money that the government is entitled to immediately, rather than when an asset is sold, fits neatly into this framework. The idea is gaining quiet respectability in policy circles beyond the Netherlands.
In the US, proposals for a billionaire minimum tax on unrealized gains have periodically surfaced.
Once such ideas move from late-night Twitter threads into enacted law in a well-governed European democracy, they can no longer be dismissed as fringe policy experiments.
India’s lesson
India does not need to speculate about where this road leads. We have already been there.
In the early 1970s, the tax burden on wealthy individuals was not merely high, it was mathematically absurd. The top marginal reached 97.75% in 1973.
At the same time, the Wealth Tax Act imposed an annual levy of up to 8% on the market value of assets, including jewellery, real estate and financial holdings, assessed every year on 31 March.
This was not exactly a tax on unrealized gains, but it produced much the same effect.
If the value of your assets rose, your wealth tax liability also increased, regardless of whether you sold anything or earned any actual income from those assets.
In many cases, the combined tax arithmetic became impossible to meet with ordinary income.
For high-net-worth individuals, total often exceeded total income.
The predictable outcome was not compliance but distortion: the rise of India’s black-money economy, widespread underreporting of assets, a dysfunctional stock market, and the broader stagnation of business and industry that characterised that period.
History repeats
India’s experience is a useful corrective to the optimistic belief that clever policy design can make a tax on paper gains workable.
The problems are not incidental; they are structural.
When tax burdens become severe enough, people respond in predictable ways—by relocating wealth, hiding it, or restructuring their finances to avoid the system altogether.
What India spent three decades learning the hard way, the Netherlands and perhaps others now appear ready to rediscover.
And a cheerful brigade on social media will applaud every step of that journey.
Dhirendra Kumar is founder and chief executive officer of Value Research, an independent investment advisory firm