The European Commission yesterday unveiled its anticipated proposals to tax financial services.
Financial institutions, particularly banks, will start paying a financial activities tax (FAT) to help governments raise more revenue and boost their economy. The Commission argued that since the sector, especially banks, were the primary factor in causing the financial collapse two years ago, it was now time they gave their fair share through profits and pay packages.
The specifics still have to be established, however, Taxation Commissioner Algirdas Semeta indicated a preference for a five per cent levy, which could yield an added €25 billion to the EU economy.
The Commission also called for the introduction of a financial transaction tax (FTT), taxing all financial transactions such as the purchase of stocks, bonds and foreign currency made within the EU. However, Brussels wants this to be introduced only after a global agreement is reached to avoid firms moving out of the EU.
The proposal will now be submitted on behalf of the EU to the G20 meeting in Seoul, Korea in November to try to forge a deal with the rest of the world’s leading economies.
Mr Semeta said there were good reasons for taxing the financial sector and feasible ways to do so. “I believe the ideas the Commission has put forward today are the right ones to ensure the financial sector makes a fair contribution to the most pressing EU and global challenges.”
Although still early, government sources said Malta would be in favour of such new taxes “as long as they are fair and on a level playing field among all the EU member states”.
Malta also agrees with the transaction tax should there be a global agreement.
The Commission said the financial sector was a major cause of the financial crisis and received substantial government support over the past few years. It should, therefore, properly contribute to the cost of rebuilding Europe’s economies and bolstering public finances.
Brussels said that a corrective bank tax could complement the essential regulatory measures designed to enhance the efficiency of financial markets and to reduce their volatility. “Given that the financial sector is exempt from value added tax in the EU, such tax would ensure this sector is not under-taxed compared to others,” the Commission said.
Although, in general, EU governments are expected to support these initiatives, they are still divided on what the money raised by any bank tax should be used for. Germany has said the money should go into a special fund that would finance future bailouts while France and the UK want to use the money to plug holes in their budgets.
The proposals will now be presented to EU Finance Ministers next week prior to a proper decision at an EU summit planned for the end of this month.