Financial Transaction Tax Will Raise Billions

June 15, 2011 Taxation in EUTaxation in UK

Financial Transaction TaxImplementing a worldwide Financial Transaction Tax would lead to billions being raised in extra tax revenues across the world, however the system will have no direct positive impact on the international finance market.

With just more than a week to go before the meeting of EU Finance Ministers, scheduled to be held in Brussels on June 23rd, the UK Institute of Development Studies has released a new report on the potential effectiveness of an Financial Transaction Tax (FTT). The authors of the publication said that their analysis is the first comprehensive review on the feasibility of an FTT, and can be used to for future high-level debate and further planning of such a tax.

According to conclusions drawn in the research, applying a 0.005 percent tax to the international foreign exchange market would raise in excess of USD 25 billion per annum. The FTT system would yield nearly USD 11 billion in the UK alone, a sum equivalent to the country’s entire annual foreign aid budget.

While the tax has the potential to raise significant amounts of funds, the system would not decrease international market volatility, as proposed by the system’s proponents. The authors suggested that an FTT would have no effect on overall stability, but a transaction tax rate that is inappropriately set could even increase fluctuations in the currency exchange market.

Currently implemented international currency exchange infrastructures would make it relatively easy to instate a unilateral FTT. The tax would raise the highest revenues if levied across the globe, but would still prove to be beneficial if only charged in the key international financial centers. ?owever, the authors suggested that an FTT would also yield significantly positive results if it was only implemented across the Euro zone.

Photo by Keoki Seu