By Simon Miller
The EU Commissioner for Taxation Algirdas Semeta has reaffirmed his belief that there is a political and economic case for taxing the financial sector with either a Tobin tax on transactions or a tax on activities.
Speaking to the Brussels Tax Forum 2011 today, Semeta said that since the financial crisis there was “a degree of urgency to see how tax policy can contribute to the comprehensive response to the crisis”.
The Commissioner said the financial sector was a good area in which to find innovative sources of contributing to the financing of supplementary public revenues and pointed out that the sector had benefited from state support to prevent it from collapsing.
The European Council and Eurozone members have invited the Commission to examine innovative financing at global level and to explore and develop further the introduction of a financial transaction tax.
Semeta said there were essentially two forms of taxation that the Commission was looking at – a Financial Transaction Tax (FTT) and a Financial Activities Tax (FAT).
The FTT – more commonly known as a Tobin tax, is aimed at “putting sand in the wheels of financial markets and recent proposals have moved on from just taxing currency trades to targeting stocks, bonds and possibly derivatives.
Semeta pointed out that there were still questions surrounding FTT with what was the degree of revenue certainties and how would they affect market volatility.
The second tax, FAT, is a tax on the sum of profit and remunerations of the sector and again there are questions including whether it is an adequate substitute for the absence of VAT and whether it distorts the economy.
The European Parliament voted in favour of a Tobin tax on 8 March and, despite concerns that this should only be introduced on a global basis, has urged Europe to go it alone.
Semeta has already said he favoured an EU level FAT unless agreement was made to introduce FTT on a global basis but told the forum: “I have no prejudice on the instrument. I want the best option to serve our purpose, and the one which will best mitigate the main risks identified: relocation of activity, risk of double taxation through uncoordinated tax schemes and excessive administrative or cost burden due to the cumulative impact with regulation.”
The Spring Council meeting of the European Union finished on Saturday with European leaders failing to agree to the introduction of a FTT to compensate taxpayers for bank bailouts. Instead, the 27 nations said they were urgently seeking an agreement before the G20 Summit in Toronto this June.
At the forum, Semeta commented: “Many policy-makers in the EU – and I am one of them – firmly believe that there is a political and economic case for taxing the financial sector. The jury is still out, however, on the best way to do this.”