Friday, July 30, 2010

Finance experts call for 'Tobin tax' on foreign exchange trades

Finance experts call for 'Tobin tax' on foreign exchange trades
Levy of 0.005% on $1m foreign exchange deal would be $50
Billions of transactions a year would raise about $33bn
Phillip Inman, Sunday 18 July 2010

An international group of finance experts including the boss of the UK's main chartered accountancy body, have criticised plans for bank taxes put forward by governments and the International Monetary Fund in favour of reviving the idea of a "Tobin tax" on foreign exchange trades.

The global tax could raise $33bn (£21.5bn) to fund development projects and bring nations together in a single effort to combat poverty rather than create divisions through competing bank taxes, the report said.

The report by the Leading Group, commissioned by 12 governments including the previous Labour administration, follows calls by Lord Turner for a tax on bank currency transactions to "throw sand in the wheels" of the banking system to discourage "socially useless" trading activities.

It said a tax on foreign exchange deals, which would cost an extra 0.005% on each trade, was simple and mimicked existing arrangements. About 95% of foreign exchange transactions between banks are already processed via a single computer system (CLS Bank), which collects a transaction fee of 22 cents per $1m traded.

Unlike taxes applied by national governments, the "Global Solidarity Tax" would be paid into a central pool and shared among developing nations.

A spokesman for the Robin Hood Tax campaign urged the coalition government to back the report.

The Leading Group of experts is hopeful their report will be given a hearing ahead of the G20 summit in the autumn, which will debate proposals for bank taxes. But critics of the G20 expect rich nations to reject a global tax in favour of individual nations adopting domestic schemes.

Under the latest proposals, the tax would be applied to deals in the four main currencies – the dollar, yen, euro and sterling – traded on forex markets. If the US government opted out of the scheme, the majority of tax revenue would be lost.

Michael Izza, head of the Institute of Chartered Accountants in England & Wales, said the group's remit was to investigate a way to raise funds that not only generated billions of pounds but also avoided tax arbitrage – taking advantage of varying prices in different markets –across major economies. "A tax on currency trading was attractive because probably for the first time we had centralised currency settlement systems that allow small taxes to be collected. It is not a technical problem, only one of political will," he said.

Izza said there were fears that banks would try to trade away from the main currency markets to avoid the tax. But the report said avoidance could be discouraged by central banks, which controlled currencies and monitored trading.

The IMF's boss, Dominique Strauss Kahn, argued the global levy would be passed on to customers and investors. The Leading Group report said it was likely some of the tax would be passed on just as all taxes were part of trading costs. It said the burden would be shared internationally under a global currency tax.

No comments: