TY - JOUR
T1 - Balancing the regulation and taxation of banking
AU - Chaudhry, Sajid Mukhtar
AU - Mullineux, Andrew
AU - Agarwal, Natasha
N1 - © 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
PY - 2015/12/1
Y1 - 2015/12/1
N2 - This study gives an overview of bank taxation as an alternative to prudential regulations or non-revenue taxation. We review existing bank taxation with a view to eliminating distortions in the tax system, which have incentivized banks to engage in risky activities in the past. We furthermore analyze taxation of financial instruments trading and taxation of banking products and services and their ability to finance resolution mechanisms for banks and to ensure their stability. In this respect, we put forward the following arguments: (1) that a financial transaction tax is economically inefficient and potentially costly for the economy and may not protect taxpayers; (2) that a bank levy used to finance deposit guarantee and bank resolution mechanisms is potentially useful for financial stability, but that it poses the threat of double taxation, together with the proposed Basel-III Liquidity Coverage Ratio; and (3) that we support the elimination of exemption from value added tax (VAT) for financial services in order to provide banks with a level playing field, while retaining exemption for basic payments services. This is expected to improve efficiency by reducing the wasteful use of financial services.
AB - This study gives an overview of bank taxation as an alternative to prudential regulations or non-revenue taxation. We review existing bank taxation with a view to eliminating distortions in the tax system, which have incentivized banks to engage in risky activities in the past. We furthermore analyze taxation of financial instruments trading and taxation of banking products and services and their ability to finance resolution mechanisms for banks and to ensure their stability. In this respect, we put forward the following arguments: (1) that a financial transaction tax is economically inefficient and potentially costly for the economy and may not protect taxpayers; (2) that a bank levy used to finance deposit guarantee and bank resolution mechanisms is potentially useful for financial stability, but that it poses the threat of double taxation, together with the proposed Basel-III Liquidity Coverage Ratio; and (3) that we support the elimination of exemption from value added tax (VAT) for financial services in order to provide banks with a level playing field, while retaining exemption for basic payments services. This is expected to improve efficiency by reducing the wasteful use of financial services.
UR - https://linkinghub.elsevier.com/retrieve/pii/S1057521915000496
U2 - 10.1016/j.irfa.2015.01.020
DO - 10.1016/j.irfa.2015.01.020
M3 - Article
SN - 1057-5219
VL - 42
SP - 38
EP - 52
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
ER -