EC and IMF back move for a tax on bank profits
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The European Commission and the International Monetary Fund have both backed the introduction of a tax on banking sector profits to stabilise the banks and curb risk-taking behaviour.
One of the ideas that has gained support from both the EC and IMF is a financial activities tax on the profits and pay of financial companies.
An alternative would be a tax on transactions such as equities, derivatives and foreign exch-ange trading, known as a financial transactions tax, although both the EC and the IMF have said they are less keen on this.
A further idea under discussion is a pool of funds to draw on in the event of another crisis.
In a paper published last week, the EC says that as the financial sector is exempt from paying VAT in the European Union, a tax on profits would ensure that firms are not under-taxed. The Commission believes that financial firms should contribute to the cost of rebuilding Europe’s economies due to the substantial government support the sector has received in the wake of the financial crisis.
Commissioner for taxation, customs, anti-fraud and audit Algirdas Semeta says: “There are good reasons for taxing the financial sector and feasible ways to do so. I believe that the ideas that the commission has put forward are the right ones to ensure that the financial sector makes a fair contribution to the most pressing EU and global challenges.”
These comments were echoed by IMF managing director Dominique Strauss-Kahn at the IMF’s annual meeting in Washington last week.
He said: “A tax can be a way, along with regulation, to curb risk-taking behaviour. There is no reason why risks can be taken by a small group of people when it is beneficial but when there is a problem, it is a problem for everybody.”
The Committee of European Banking Supervisors, made up of regulators from the EU’s 27 members, also met last week to thrash out draft rules on bankers’ pay. The committee is expected to cap the amount of a bonus that can be taken in cash to 20 or 30 per cent of salary.
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