Saturday April 24 2010GLOBAL EDITION
Peter Thal Larsen
The International Monetary Fund has proposed a Financial Activities Tax, to be levied on banks' profits before compensation. The proposed tax, set out in a draft IMF paper obtained by the BBC, would be designed to target excess profit and pay in financial institutions. The tax would be similar to value-added tax on the finance sector. Most countries do not currently levy a VAT on financial institutions. Michael Devereux, director of the Oxford University Centre for Business Taxation, said the extent of tax distortion would depend on whether it was levied on all profits or those deemed to be in excess of a certain acceptable level. "A tax on total value added would not be neutral, and may be passed on to consumers in higher prices," he said. "However, because the tax is based only on excess profits and total remuneration, then it should not directly affect the ways in which banks either in raise finance, or invest." The IMF calculated that a 2 percent FAT in the UK would raise taxes equivalent to 0.1 to 0.2 percent of UK GDP.