Forex Tax Could Raise Billions for Aid

July 21, 2010 International Tax Cooperation

Stock ExchangeInternational aid development projects could be benefited with billions of extra funding if a minuscule tax were to be added to the current foreign exchange trade framework.

In excess of USD 30 billion could be raised annually to fund international development projects, if an international consensus was reached to impose a 0.005 percent Current Transaction Tax (CTT). The idea was raised last week in Globalizing Solidarity : The Case for Financial Levies, a report prepared by the Leading Group, under commission of 12 international Governments.

Under the proposal, the CTT could be imposed by any single Government, trade block or currency zone wishing to do so. The collected funds would be consolidated into a single pool, and distributed towards chosen development projects. The CTT concept holds a particular advantage over previous transaction tax or bank levy proposals, and current Forex systems would only need minimal adjustments to implement the idea, greatly reducing administrative or logistic problems. Additionally, the CTT does not require unilateral international agreement, allowing country’s voluntary participation, bypassing current disagreement surrounding similar taxes. If implemented in its current form, the system will be dubbed the Global Solidarity Levy (GSL), and ideally be administered by a rotating membership of representatives from the public and private sector of participating developed and developing economies.

Proportionately, the benefit of the GSL for development projects and developing nations greatly outweighs the potential added costs to the Forex market. Under current estimates, the funding gap of international development project commitments will exceed USD 324 billion annually, by 2017. The international fiscal instabilities faced by many nations are compounding overall fiscal shortfalls, making the GSL and increasingly attractive and low-impact option for Governments wishing to meet their aid project obligations.

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