The Impact of Possible Financial Transaction Tax on the Market

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        Global financial crisis started from Subprime Mortgage crisis in the United States and had a crucial effect on the world economics, resulted in some countries’ sovereign debt problems. However, against this historic financial crisis, each countries fiscal and monetary policy and international cooperation made global economic system to void the very worst situation. Recently, the number of countries which are seeking execute its exit strategy has increased and took action such as raising the interest rate. As we are getting good control of the situation, international debates about responsibility and prevention of reoccurrences are on the progress. The United States President Barack Obama emphasized on the responsibility of the financial crisis and has been working hard for related legislation. Korea cannot be too liberal to solve this conundrum as a host of G20, who holds a key for selection of agendas. There needs to be international consensus agreed on issue of addressing the possibility of introduction of the financial transaction taxation and reviewing the future line of policy.

        Many countries surmount the financial crisis by enormous government funds’ influx and they made discusses lively about the redemption of financial funds and the way to prevent recurrences. There were many events as there were many live debates.

When

Who

What

July, 2009

Obama

Announced the revision of financial supervisory system: vested the rigid supervisory capacity to FRB and strengthened the function of consumer protection in financial market

Aug., 2009

Turner

Suggested the introduction of Tobin tax: German, France, and Italy assented, however, USA, Canada, and Sweden opposed

Sep., 2009

Steinbrueck

Suggested the introduction of international finance transaction tax

Sarkozy

Suggested the introduction of Tobin tax at short-term foreign currency again.

Nov. 2009

Brown

Suggested again about Tobin tax and USA, Canada opposed again

Jan. 2010

Obama

Stated the Financial Crisis Responsibility Fee and Volcker Rule

        According to the request of G20, IMF announced the interim report at Washington G20 finance minister conference. However, as the situations of each country are very different such as government deficit, the interest rate and so on, even similar politics has different effect their own countries. Thus, we must watch the progress whether the real and close collaboration system can be constructed or not based on the IMF final report.

Financial Transaction Taxation

       The debates about imposing tax on the financial transactions such as stocks and financial derivatives, Wall Street Taxation, has been hotly talked about and DeFazio and some members of Parliament proposed the bill of financial transaction taxation. To be more specific, 0.25% would be imposed on stocks and 0.02% on forwards, swaps, and CDS. The CBO of the United Sates expected that there will be 150 billion dollars of increased amount of tax revenue, however, this bill have discrepancy in final effect on the whole economics. Some insists that the effect to investors will be negligible because the tax rate is very low and the bill has many exceptions about exemption. Others, however, insists that the effect of this bill would be enormous, not even measurable at this point and would have huge impact over other industries as well.

        According to the statement of Geithner, the finance minister of the U.S, the U.S government is in the opposite stance of the Council. The first and the clearest objective of this bill is to impose the burden to large financial corporations. However, this burden can easily be shifted to consumers.

Responsibility Fee

        President Obama stated that the imposing of Financial Crisis Responsibility Fee on Jan. 14th, 2010. The real economy was severely damaged whereas Wall Street has recovered the profit at the pre-crisis level by enormous support by the Fed and the government. Thus, the objective of Financial Crisis Responsibility Fee is to collect the public fund and preclude the obtaining the speculative assets to prevent recurrence of financial crisis. It can act as a contingency plan.

        Europe preferred to introduce new taxation which is fluxed to general revenue concerning the government deficit after financial crisis. First, Brown, minister of England, insisted to introduce the Tobin tax with some reservations about international collaboration.

        England temperately imposes “Bank Payroll Tax” on the incentives of banks’ staffs from Dec. 2009 to Apr. 2010. This law was introduced to correct the incentive mechanism which induced their tellers to risk their investment and remunerate at relevant degree. To be specific, tax rate, 50%, was stipulated 50% to the incentives which excess the 25,000 pound except as the form of stock or stock option. At first, England expected the tax revenue, 550 million pounds (0.04% of GDP) now they anticipated about 200 million pounds.

        According to IMF intermediary report, Financial Stability Contribution was suggested as main method and Financial Activities Tax, somewhat new, as side method. Financial Stability Contribution is similar to the United States’ Responsibility Fee. At the first state, homogeneous rate to all participants will be applied. However, ultimately heterogeneity rate will be applied according to the degree of each bank’s responsibility of current system risk. These methods to stabilize the finance market after huge financial damage is welcomed worldly. Although the specific characters such as tax rates or anticipated results.

        Comparing with these laws, profit is the target of corporation tax under the taxation system of the Rep. of Korea and revenue of members of finance and insurance are taxed as education tax. Although some European countries tax on Insurance Levy, there is on other countries which have the same rule as ours: education tax. If Financial Activity Tax is imposed additionally in this situation, there is high possibility that the issue of double taxation will occur. Thus, if this specific education tax, one of major object tax, is abolished, then we can easily expect that introducing financially tax can be debated more seriously.

Jung Kyongchae / sohot0108@gmail.com

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3 thoughts on “The Impact of Possible Financial Transaction Tax on the Market

  1. Times change and business strategies means after leaving as well.
    It is the next evolutionary step for each point of sale in its ability to process credit cards through merchant account services. Once you have created your account you will be able to process credit and debit card payments quickly, easily and safely.
    By opening this account provider had to go to some information from you about your business. Declared a merchant account provider first needs information about the bank account of your business. Most merchant account providers actually provide card terminals complimentary pass.

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