Financial Transaction Taxes are Not Sensible

July 16, 2013 International Tax CooperationTaxation in EU

Carlo CottarelliMILAN – Transaction taxes reduce liquidity on financial markets, and governments should look at other alternative measures for taxing financial activities.

While speaking at a conference in Milan on July 15th the director of the Fiscal Affairs Department of the International Monetary Fund (IMF) Carlo Cottarelli said that a tax on financial transactions is old fashioned and “… in general, is not so sensible”, with more efficient options being available to improve the stability of financial markets.

Carlo Cottarelli added that over the last three years the IMF has advocated alternatives to the transaction tax, having suggested that greater stability and security could be achieved by introducing a tax on bank assets, a levy targeted specifically at high-frequency trading, or a tax on the value added tax on operations in the financial sector.

Commenting on the proposal to implement a financial transaction tax in Europe, the director claimed that there is strong evidence that it could reduce the overall tax base, directly leading to a reduction in revenues collected.

He noted that when similar taxes were introduced in the past, there was no significant reduction in market volatility, but invariably there was reduction in liquidity, with drops in trading volumes of up to 15 percent.

Photo by International Monetary Fund