1

Why We need A llnanclal 1ransacLlon 1ax A roposal lor 1he C20

WrlLLen by kaval[lL Slngh
osLed 01 november 2011 1011
AL Lhe forLhcomlng C20 SummlL (Cannes 34 november 2011) Lhe summlL leaders are expecLed Lo
address several pollcy lssues concernlng world economy and flnanclal markeLs many of whlch
remalned unresolved slnce Lhe 1oronLo SummlL ln !une 2010 AgalnsL Lhe backdrop of a weak global
economy and Lhe ongolng eurozone soverelgn debL crlsls C20 leaders wlll have Lo Lake some hard
declslons lallure Lo do so would undermlne Lhe effecLlveness and credlblllLy of C20 as Lhe
premlum forum" for lnLernaLlonal economlc cooperaLlon
Cne of Lhe key pollcy lssues Lo be Lackled aL Lhe Cannes SummlL ls Lhe lnLroducLlon of a global
flnanclal LransacLlon Lax (l11) 1he lnLerlm 8eporL of Lhe C20 on lalr and SubsLanLlal ConLrlbuLlon
by Lhe llnanclal SecLor (2010) had proposed a flaL raLe levy on all flnanclal lnsLlLuLlons and flnanclal
acLlvlLles Lax" on proflLs and remuneraLlon ln order Lo pay for fuLure flnanclal cleanups and reduce
sysLemlc rlsk 8uL Lhe proposal goL dlluLed aL Lhe C20 meeLlng held aL 8usan ln !une 2010 whlch
called for lmplemenLaLlon of Lhe levy Laklng lnLo accounL lndlvldual counLry's clrcumsLances and
opLlons

1he pollcy ob[ecLlves for a l11 are essenLlally Lwofold Lo ralse revenue and Lo resLore sLablllLy and
lnLegrlLy ln Lhe flnanclal markeLs Accordlng Lo esLlmaLes made by 8lll CaLes (founder of MlcrosofL) ln
a forLhcomlng reporL Lo Lhe C20 on new sources of flnance for developmenL a Lax on flnanclal
LransacLlons could generaLe abouL $30 bllllon from C20 membercounLrles Some oLher esLlmaLes
clalm LhaL a global flnanclal LransacLlon Lax could generaLe as much as $230 bllllon lf a wlde range of
LransacLlons are lncluded 1he resources ralsed Lhrough l11 could be beLLer uLlllzed Lo supporL
programs Lo flghL hunger and poverLy and pay for cllmaLe mlLlgaLlon and adapLaLlon cosLs

1he Luropean 1ax roposal

Cn 28 SepLember 2011 Luropean Commlsslon resldenL !ose Manuel 8arroso announced Lhe
adopLlon of an LC proposal Lo lmplemenL a l11 ln all 27 membersLaLes of Lhe Luropean unlon Pe
also underllned Lhe need for Lurope Lo collecLlvely push for a global l11 aL Lhe Cannes SummlL

1he Luropean proposal conslsLs of a 01 percenL Lax on Lradlng bonds and shares and a 001 percenL
Lax on derlvaLlves Lradlng 1hese are mlnlmum Lax raLes and membersLaLes can lmpose hlgher raLes
lf Lhey wlsh Accordlng Lo Lhe offlclal sLaLemenL Lhe Lax would be levled on all LransacLlons on
flnanclal lnsLrumenLs beLween flnanclal lnsLlLuLlons when aL leasL one parLy Lo Lhe LransacLlon ls
locaLed ln Lhe Lu
2


lL ls esLlmaLed LhaL Lhe proposed Lax could generaLe around $78 bllllon a year lf unanlmously
approved by all membersLaLes Lhe Luwlde Lax wlll come lnLo force on !anuary 1 2014 uesplLe
reslsLance from powerful flnanclal servlces lobby Lhe proposed Luropean Lax Lransplred ln response
Lo growlng publlc anger agalnsL Lhe masslve ballouLs and cosLly publlc recaplLallzaLlons of banks and
flnanclal lnsLlLuLlons slnce 2008

1he proposed Lax en[oys conslderable publlc supporL wlLhln Lurope Cermany and lrance have
sLrongly backed Lhe Lu proposal whlle Lhe uk lnslsLs LhaL lL would only back a flnanclal LransacLlon
Lax lf lL were applled globally 1he ClLy of London lobby groups (such as Luropean 8anklng
lederaLlon) and conservaLlve LhlnkLanks (such as Adam SmlLh lnsLlLuLe) have sLrongly opposed Lhe
Luropean Lax proposal 1he crlLlcs argue LhaL Lhe proposed Lax would Lrlgger a llquldlLy squeeze and
lncrease Lhe cosLs of Lradlng for flnanclal lnsLlLuLlons and oLher markeL parLlclpanLs 1he uk's
supporL Lo Lhe Luwlde Lax proposal ls vlLal as ClLy of London ls Lhe world's leadlng flnanclal cenLer
1here are apprehenslons LhaL Lhe uk could moblllze oLher Luropean counLrles parLlcularly Sweden
and lreland agalnsL Lhe proposed Lax ln Lhe comlng monLhs

1he Crowlng CpposlLlon

AL C20 Lhe ldea of a global l11 has been sLrongly reslsLed by Canada uS and AusLralla ln parLlcular
Canada has been a vocal crlLlc of a global l11 for many years uurlng Lhe 1oronLo SummlL Lhe
Canadlan leadershlp dld noL encourage any serlous dlscusslons on Lhe l11

Canada ls opposed Lo Lhe Lax on Lhe grounds LhaL lLs banklng sysLem remalned sLrong durlng Lhe
global flnanclal crlsls and no ballouLs were soughL Canada also percelves LhaL Lhe l11 would be
counLerproducLlve durlng Lhe weak economlc condlLlons We wlll conLlnue leadlng LhaL charge
agalnsL a LransacLlons Lax and l am confldenL LhaL our allles on Lhls polnL who are Lhe emerglng
economles wlll sLay wlLh us and [oln us ln opposlng whaL we vlew as a counLerproducLlve Lax" sald
Mr !lm llaherLy (Canada's llnance MlnlsLer) ln a speech Lo Lhe uS flnanclal lndusLry ln response Lo
Lhe Luropean proposal l am acLually confldenL LhaL we have enough of Lhem ln Lhe C20 LhaL we
wlll be successful on LhaL lnlLlaLlve" he furLher added

WlLh Lhe LacLlcal backlng of uS AusLralla Chlna and lndla Canada could generaLe enough pollLlcal
supporL wlLhln C20 agalnsL a global S11 aL Lhe Cannes SummlL

lndla's oslLlon on l11
3


AL Lhe C20 MlnlsLerlal MeeLlng aL 8usan (!une 2010) lndla expressed lLs reservaLlons agalnsL a
global l11 on Lhe grounds LhaL Lhere was need for beLLer and wellplaced regulaLlons raLher Lhan
lmposlng Laxes on Lhe banks and flnanclal LransacLlons

lndla also polnLed ouL LhaL lLs conservaLlve approach Lowards banklng regulaLlon helped ln
proLecLlng naLlonal banklng sysLem 1here ls no denylng LhaL lndla's regulaLory framework (ofLen
crlLlclzed as ouLdaLed" and lnward looklng") acLed as a key facLor ln proLecLlng Lhe domesLlc
banklng sysLem from Lhe global flnanclal crlsls yeL lndla's offlclal poslLlon on l11 aL Lhe C20 ls
quesLlonable on Lhree counLs

llrsLly LransacLlon Laxes are an lnLegral parL of Lhe armoury LhaL pollcymakers deploy Lo regulaLe Lhe
flnanclal secLor no one has clalmed LhaL LransacLlons Laxes are a subsLlLuLe Lo wellplaced
regulaLory and supervlsory measures 8aLher LaxaLlon and regulaLlons are compllmenLary Lools used
by pollcymakers Lo address exLernallLles

Secondly noL long ago lndla had sLrongly argued ln favor of a global flnanclal LransacLlon Lax Lo
meeL soclal and developmenLal needs of Lhe poor counLrles aL varlous lnLernaLlonal forums Whlle
addresslng Lhe nonAllgned MovemenL 8uslness lorum ln kuala Lumpur (2003) Lhe Lhen lndla's
rlme MlnlsLer Mr ALal 8lharl va[payee sLaLed l belleve Lhere ls anoLher lnlLlaLlve whlch nAM can
spearhead for Lhe reform of Lhe lnLernaLlonal flnanclal archlLecLure We know LhaL unsLable caplLal
flows can severely dlsrupL developlng economles 1here ls less ready accepLance of Lhe ldea LhaL
such flows should be regulaLed by an lnLernaLlonal levy l belleve Lhls ls a reform whose Llme has
come"

1hlrdly lndla lLself lnLroduced a SecurlLles 1ransacLlon 1ax more Lhan slx years ago wlLh Lhe Lwln
ob[ecLlves of ralslng addlLlonal revenue and malnLalnlng markeL lnLegrlLy 8y noL lendlng supporL Lo
Lhe ldea of a global l11 aL C20 lndla has losL an opporLunlLy Lo bulld LacLlcal alllances wlLh Lhe poor
counLrles and global clvll socleLy Lo reforms Lhe flnanclal markeLs

SecurlLles 1ransacLlon 1ax ln lndla

ln 2004 lndla lnLroduced a SecurlLles 1ransacLlon 1ax (S11) ln equlLy markeLs CurrenLly S11 ls
charged aL Lhe raLe of 0123 percenL on a dellverybased buy and sell LransacLlons and 0023 percenL
on non dellverybased sale LransacLlons 1he raLe ls 0017 percenL on lC sale LransacLlons
lmposed on boLh forelgn and domesLlc lnvesLors Lhe S11 ls collecLed by Lhe sLock exchanges from
4

Lhe brokers and passed on Lo Lhe exchequer Lhereby enabllng Lhe auLhorlLles Lo ralse revenue ln a
neaL and efflclenL manner

1ermed as 1ermlnaLor 1ax" Lhe S11 was sLrongly opposed by a lobby of speculaLors day Lraders
arblLrageurs and nolse Lraders" Many of Lhem had predlcLed LhaL Lhe lnLroducLlon of S11 would
brlng lndlan flnanclal markeLs Lo a sLandsLlll and would dry up llquldlLy

Slnce lLs lmplemenLaLlon all apprehenslons relaLed Lo S11 have proved erroneous 1he facL LhaL
Lhere ls Loo much llquldlLy ln Lhe lndlan markeLs ls also admlLLed by Lhe crlLlcs of S11 1he
lmplemenLaLlon of S11 has also reduced some loopholes ln Lhe exlsLlng Lax reglme lor lnsLance
forelgn lnvesLors who used Lo Lake undue advanLage of Lhe bllaLeral dlrecL Lax avoldance LreaLles
(such as lndlaMaurlLlus Lax LreaLy) are now Laxed under Lhe S11 reglme

Slnce 2004 lndlan auLhorlLles have collecLed slzeable revenue from Lhe S11 uurlng Lhe flscal year
200910 Lhe governmenL's revenue from S11 was 8s 39940 mllllon ($13 bllllon) a subsLanLlal
amounL ln Lhe presenL Llmes when Lax revenues are under severe pressure 1he Lax auLhorlLles have
seL a LargeL of 8s 73000 mllllon ($16 bllllon) for Lhe flscal year 201112 Powever Lhe Lradlng Lrends
reveal LhaL Lhe S11 dld noL help much ln reduclng Lhe volaLlllLy ln Lhe lndlan equlLy markeLs as
anLlclpaLed by many proponenLs

8aLher Lhan furLher wldenlng Lhe scope of S11 llnance MlnlsLry ls plannlng a compleLe or phased
wlLhdrawal of lL wlLh Lhe expecLaLlon LhaL lL may subsLanLlally lncrease markeL Lurnover

1he 8aLlonale behlnd l11

AparL from revenue poLenLlal Lhere are several oLher [usLlflcaLlons for Lhe adopLlon of a global
LransacLlon Lax Such a Lax could faclllLaLe Lhe monlLorlng of lnLernaLlonal flnanclal flows by
provldlng a cenLrallzed daLabase on such flows whlch ls Lhe need of Lhe hour 1hls could be
parLlcularly valuable Lo Lhe poor and developlng counLrles where large lnformaLlon gaps exlsL

unllke many oLher servlces no value added Lax (vA1) ls lmposed on flnanclal LransacLlons ln many
[urlsdlcLlons 8y Laxlng dlverse flnanclal LransacLlons a sLrong message would be conveyed LhaL
prlvaLe banks and flnanclers musL share Lhe cosLs of Lhe global flnanclal crlsls

3

Clven Lhe facL LhaL ma[orlLy of LransacLlons carrled ouL by speculaLors and hlgh frequency Lraders
are shorLLerm and speculaLlve Lhls Lax can curb speculaLlve Lendencles LhaL lnduce excesslve
volaLlllLy and fraglllLy ln Lhe flnanclal markeLs Whlle a small Lax ls unllkely Lo dlscourage longLerm
lnvesLors such as penslon funds 1he argumenL LhaL Lhe l11 would Lrlgger a llquldlLy squeeze ln
flnanclal markeLs lacks evldence As argued by Avlnash ersaud (ln a recenL arLlcle aL voxLu)
uurlng calm Llmes when markeLs are already llquld hlghfrequency Lraders are conLrarlan and
supporL llquldlLy buL durlng Llmes of crlsls Lhey Lry Lo run ahead of Lhe Lrend dralnlng llquldlLy [usL
when lL ls needed mosL as we saw wlLh Lhe llash Crash on 6 May 2010 lf a LransacLlon Lax llmlLs
hlghfrequency Lradlng lL may even provlde a bonus ln lmprovlng sysLemlc reslllence"

ls a l11 leaslble?

Much of Lhe crlLlclsm of Lhe l11 ls cenLered on Lhe quesLlon of lLs pracLlcablllLy and Lechnlcal
feaslblllLy lL ls ofLen argued LhaL Lhe lmposlLlon of such a Lax ls a dlfflculL proposlLlon slnce Lhe
volumes Lraded are Loo hlgh lf Lhe modern elecLronlc sysLem can enable largescale flnanclal
LransacLlons wlLhln and across borders why can'L Lhe same Lechnology be used Lo collecL Laxes?

CrlLlcs also argue lL ls almosL lmposslble Lo geL all Lhe counLrles Lo agree on a common global Lax
neverLheless a beglnnlng can be made wlLh a few counLrles comlng LogeLher on Lhls lssue even lf a
sLrong consensus across LerrlLorles ls noL posslble lmmedlaLely Lurope can Lake Lhe lead and
lnLroduce Lhe l11 aL Lhe Luropean level 1he C20 membercounLrles could also lmpose such a Lax
unllaLerally or collecLlvely An agreemenL among Lhe leadlng flnanclal cenLers could also conLaln Lhe
LhreaL of relocaLlon of flnanclal acLlvlLles Lo oLher places

1he lssues ralsed by l11 are more pollLlcal Lhan Lechnlcal lLs adopLlon requlres sLrong pollLlcal wlll
parLlcularly among Lhe C20 membercounLrles 1he recenL experlence (for lnsLance money
launderlng relaLed Lo drug Lrafflcklng) shows LhaL lnLernaLlonal cooperaLlon among counLrles ls
posslble lf Lhere ls a pollLlcal wlll A slmllar cooperaLlve lnlLlaLlve ls requlred Lo address myrlad
lmplemenLaLlon lssues relaLed Lo l11

AnoLher common crlLlclsm of l11 ls relaLed Lo evaslon All Laxes (eg lncome Lax and properLy Lax)
for LhaL maLLer are open Lo evaslon buL Lhls ls noL sound enough reason for noL havlng Lhem
ConcerLed efforLs should be made Lo check loopholes as no pollcy measure can be foolproof

Whlle supporLlng Lhe case for a global flnanclal LransacLlon Lax no one argues LhaL all problems
relaLed Lo global flnanclal markeLs would be resolved ln Lhe presenL Llmes no slngle pollcy
lnsLrumenL alone can flx global flnance neverLheless such a Lax could serve as a flrsL sLep Lowards
6

bulldlng lnLernaLlonal cooperaLlon on global flnanclal reforms lf lL ls used ln con[uncLlon wlLh oLher
pollcy lnsLrumenLs (for lnsLance caplLal conLrols) l11 does offer an aLLracLlve mechanlsm Lo reform
Lhe global flnanclal markeLs

8y kaval[lL Slngh

30 CcLober 2011

CounLercurrenLsorg

kaval[lL Slngh ls Lhe ulrecLor of Madhyam new uelhl (wwwmadhyamorgln) 1hls arLlcle ls based on
a recenL 8rleflng aper broughL ouL by Madhyam ln close collaboraLlon wlLh SCMC (AmsLerdam)


lnLernaLlonal Laxes on
flnanclal LransacLlons
8espondlng Lo global challenges
Lowards a falrer sharlng of cosLs
A CluSL oslLlon aper
november 2009
ConLacL lnformaLlon
CluSL
lanny Llesegang
8ue SLevln 16
1000 8russels 8elglum
llesegang[cldseorg
+32 (0)2 230 77 22
wwwcldseorg
llnanclal LransacLlon Laxes are back on Lhe lnLernaLlonal
7

agenda
1he global economlc crlsls has puL Lhe ldea of LaxaLlon on flnanclal
LransacLlons back on Lhe pollLlcal agenda CovernmenLs faced wlLh masslve
budgeL deflclLs and huge publlc debLs afLer flnanclng ballouLs and
economlc sLlmulus packages are ln search of fundlng 1hey are also keen
Lo meeL publlc demands LhaL Lhe flnanclal secLor should pay lLs falr share
buL LhaL cuLs ln soclal spendlng envlronmenL and publlc goods or rlslng
Lax burdens on clLlzens should be mlnlmlzed
ueveloplng counLrles are faclng addlLlonal problems of Lackllng mulLlple
crlses wlLh llmlLed resources Lo avold negaLlve lmpacLs on efforLs Lo meeL
Lhe Mlllennlum uevelopmenL Coals (MuCs)
ln Lhls conLexL flnanclal LransacLlon Laxes are seen as a posslble lnnovaLlve
mechanlsm Lo ensure sLable and predlcLable flows of complemenLary
developmenL flnance Lo meeL Lhese addlLlonal needs
ln addlLlon excesslve Lradlng ln unregulaLed flnanclal markeLs and Lhe
predomlnance of shorLLerm speculaLlon have conLrlbuLed Lo volaLlle asseLs
prlces as well as large flucLuaLlons ln exchange raLes sLock prlces and
commodlLy prlces relnforclng Lhe effecLs of Lhe flnanclal crlsls
1axes on flnanclal LransacLlons are a way of dampenlng Lhese effecLs by
reduclng speculaLlon and downslzlng flnanclal markeLs Lo sLablllze Lhe
economy
ollLlcal supporL for l11s
1axes on flnanclal LransacLlons (l11s) have been debaLed wldely ln Lhe
wake of Lhe global flnanclal and economlc crlsls
1he un Ceneral Assembly's Commlsslon of LxperLs on 8eforms
of Lhe lnLernaLlonal llnanclal and MoneLary SysLem (Lhe SLlgllLz
Commlsslon") menLloned a flnanclal servlces Lax as a way of provldlng
8

more sLable and susLalnable developmenL flnance LhaL
would also help Lo sLablllze markeLs
1he Luropean arllamenL and Lhe presldenL of Lhe Luropean
Commlsslon !ose Manuel 8arroso have spoken ouL ln favour of
Laxlng flnanclal LransacLlons
CluSL members
r 8rldderlech ueelen Luxembourg
r 8roederll[k uelen 8elglum
r CAlCu Lngland and Wales
r CClu1erre Solldalre lrance
r CenLer of Concern uSA
r Cordald Lhe neLherlands
r uevelopmenL eace Canada
r LnLralde eL lraLernlLe 8elglum
r lasLenopfer SwlLzerland
r lLC orLugal
r kCC AusLrla
r Manos unldas Spaln
r MlSL8LC8 Cermany
r SClAl ScoLland
r 1rcalre lreland
r vnMlCCSlv lLaly
2
lnLernaLlonal Laxes on flnanclal LransacLlons 8espondlng Lo global challenges Lowards a falrer
sharlng of cosLs
A number of Luropean counLrles lncludlng 8elglum lrance and AusLrla made clear pollLlcal
declslons
Lo supporL currency or flnanclal LransacLlon Laxes 1he chalrman of Lhe 8rlLlsh llnanclal Supervlsory
9

AuLhorlLy Lord 1urner has also supporLed Lhe ldea lnlLlaLlng a debaLe ln Lhe uk ln AugusL 2009
ln Lhe run up Lo Lhe C20 summlL ln lLLsburgh Luropean leaders lncludlng Cerman chancellor
Angela
Merkel and lrench resldenL nlcolas Sarkozy promoLed Lhe ldea of a Lax on flnanclal LransacLlons or
some klnd of 1obln Lax" As a resulL C20 leaders Lasked Lhe lMl Lo prepare a reporL for our nexL
meeLlng
wlLh regard Lo Lhe range of opLlons counLrles have adopLed or are conslderlng as Lo how Lhe
flnanclal secLor could make a
falr and subsLanLlal conLrlbuLlon Loward paylng for any burdens assoclaLed wlLh governmenL
lnLervenLlons Lo repalr Lhe
banklng sysLem"
1he Leadlng Croup on lnnovaLlve llnanclng for uevelopmenL an lnLergovernmenLal forum wlLh
represenLaLlon
from all conLlnenLs recenLly esLabllshed a 1askforce on lnLernaLlonal llnanclal 1ransacLlons
for uevelopmenL An experL group ls currenLly examlnlng Lhe feaslblllLy of flnanclal LransacLlon
Laxes lncludlng currency LransacLlon Laxes and wlll presenL proposals for pollLlcal declslons by May
2010
CluSL welcomes Lhese opporLunlLles Lo revlve ldeas LhaL lL has long supporLed CluSL was among Lhe
ploneers
Lo promoLe a Lax on currency LransacLlons as a response Lo Lhe Aslan crlsls ln Lhe laLe 1990s CluSL
developed
a more comprehenslve poslLlon on LaxaLlon as means Lo flnance developmenL for Lhe un lollowup
lnLernaLlonal Conference on llnanclng for uevelopmenL ln uoha lasL uecember CluSL has updaLed
lLs poslLlon
Lo reflecL recenL developmenLs and makes Lhe followlng recommendaLlons Lo promoLe an
lnLernaLlonal
flnanclal LransacLlon Lax
Cb[ecLlves of an lnLernaLlonal Lax on flnanclal LransacLlons
CluSL belleves LhaL lnLernaLlonal LaxaLlon has Lhe poLenLlal Lo conLrlbuLe Lo global [usLlce and
developmenL
ob[ecLlves by fulfllllng key funcLlons of LaxaLlon revenue ralslng and regulaLlon as well as
redlsLrlbuLlon of
10

wealLh Lo conLrlbuLe Lo global [usLlce noL only wlLhln sLaLes buL also aL Lhe lnLernaLlonal level
1axlng currency LransacLlons or more broadly flnanclal LransacLlons ls one way ln whlch Lhe fasL
expandlng
flnanclal secLor could conLrlbuLe Lowards sharlng Lhe burdens on governmenLs and Lhe pooresL
people of Lhe
mulLlple global crlses flnanclal economlc food and cllmaLe 8evenues generaLed by such Laxes
should be
used Lo supporL global efforLs Lo achleve lnLernaLlonally agreed developmenL goals AL Lhe same
Llme Lhls Lype
of LaxaLlon would play a role ln Lhe sLablllsaLlon of Lhe global economy
AlLhough acLlon aL Lhe naLlonal level ls posslble hlghly lnLerllnked global flnanclal markeLs on Lhe
one hand
and Lhe hlgh concenLraLlon of acLlvlLles on Lhe oLher suggesL reglonal and lnLernaLlonal cooperaLlon
!olnL acLlon
Lhrough reglonal and lnLernaLlonal Laxes could conLrlbuLe Lo Lhe sLrengLhenlng of represenLaLlve
democraLlc
global lnsLlLuLlons and a sense of global responslblllLy
WhaL klnd of Lax?
CluSL supporLs a sLep by sLep lnLroducLlon of a general and unlform llnanclal LransacLlon Lax whlch
should
cover all spoL and derlvaLe LransacLlons on organlzed exchanges (shares bonds securlLles and
derlvaLlves lncludlng
Lrade of fuLures and opLlons relaLed Lo sLocks lnLeresL raLe securlLles currencles and commodlLles)
ln
Lhe long Lerm Lhe Lax should be exLended Lo overLhecounLer" (C1C) LransacLlons dlrecLly relaLed
Lo asseL
prlces ln parLlcular Lo exchange raLes and lnLeresL raLes lncludlng derlvaLlves
1he Lax would be auLomaLlcally collecLed aL Lhe exchanges and borne equally by buyers and sellers
uslng Lhe
elecLronlc seLLlemenL sysLems 1hls would be easy Lo lmplemenL ln organlsed markeLs and lnvolve
llLLle admlnlsLraLlve
cosLs
11

lL would be llmlLed Lo LransacLlons beLween flnanclal markeL acLors whlle LransacLlons beLween
cusLomers and
flnanclal lnsLlLuLlons for example Lhe purchase of goods labour markeL Lransfers and so on would
be exempLed
1hus Lhe Lax would have mlnlmal dlrecL lmpacL on Lhe real economy
8ased on academlc research CluSL belleves LhaL even a small Lax raLe eg beLween 00101 1
has Lhe
poLenLlal Lo generaLe subsLanLlal revenues amounLlng Lo several hundred bllllon uS dollars per year
AlLernaLlve
l11 raLes lncludlng hlgher ones are also belng dlscussed A commonly clLed reference ls Lhe uk
sLamp
duLy of 03 levled on all sLock LransacLlons an example whlch demonsLraLes Lhe raLlonallLy and
feaslblllLy of
lnLroducLlon of a Lax aL somewhaL hlgher raLe Lhan Lhose suggesLed above
1 SchulmelsLer SLephan A Ceneral llnanclal 1ransacLlon 1ax A ShorL CuL of Lhe ros Lhe Cons and a
roposal WllC Worklng apers no 344 CcLober 2009
3
CluSL oslLlon aper november 2009
1he poLenLlal effecLs of dlfferenL Lax raLes on LransacLlon volumes and revenues should be explored
wlLhln
furLher sLudles lncludlng ln Lhe lMl and Lhe Leadlng Croup 1askforce sLudles (menLloned above) ln
order Lo
ldenLlfy Lhe opLlmal scenarlo of lmplemenLaLlon A phaslngln approach could be consldered as a
posslble opLlon
LhaL ls Lhe lnLroducLlon of a l11 aL a low raLe and a gradual lncrease of Lhe laLLer ln order Lo augmenL
revenues and lmprove Lhe counLerspeculaLlve and markeLsLablllzlng effecL of Lhe Lax
lrom Currency LransacLlon Lax Lo llnanclal LransacLlon Lax Lwo posslble opLlons
CluSL has conslsLenLly promoLed a Currency LransacLlon Lax 2 (C11 also ofLen referred Lo as 1obln
Lax")
whlch ls a speclal form of flnanclal LransacLlon Lax (l11) LargeLlng crossborder Lrade of currencles
and resulLlng
consequenLly ln exchange raLes effecLs 1hls was of speclal concern followlng Lhe Aslan crlsls ln Lhe
laLe
12

1990s where speculaLlve aLLacks on currencles were among Lhe rooL causes 3
WlLh Lhe rapld expanslon of flnanclal markeLs and lncreaslngly dlsproporLlonaLe Lrade ln derlvaLes
beyond currency
LransacLlons playlng a ma[or role ln creaLlng flnanclal lnsLablllLy Lhe ldea of lnLroduclng a general
flnanclal
LransacLlon Lax emerged A general l11 as descrlbed above can be more aLLracLlve Lhan a C11 for
Lhe
followlng reasons
A general l11 ls more comprehenslve as lL covers all Lypes of flnanclal markeLs
uue Lo Lhe enormous volume of Lhe mulLlLude of flnanclal LransacLlons Lhe Lax could yleld
slgnlflcanL
revenues even aL a low raLe
lL could be lnLroduced sLep by sLep (sLarLlng wlLh domesLlc exchanges and exchanges on organlsed
markeLs)
neverLheless boLh Lypes of LransacLlon Laxes l11 and C11 should be explored ln deLall wlLhln Lhe
currenL
sLudles conducLed by Lhe lMl and Lhe Leadlng Croup on lnnovaLlve llnanclng for uevelopmenL
ArgumenLs Lo promoLe a Lax on flnanclal LransacLlons
ConLrlbuLlon Lo global [usLlce A Lax on flnanclal LransacLlons ls a measure of pollLlcal falrness and
soclal [usLlce
as lL wlll ensure conLrlbuLlons by Lhe flnanclal secLor whlch was aL Lhe core of Lhe crlsls Lowards
crlsls resoluLlon and global recovery lL would also shlfL Lhe burden of LaxaLlon from wages and
consumpLlon
Lo caplLal Lhus maklng Lhe overall Lax sysLem more equlLable uslng Lhe ensulng revenues for
flnanclng developmenL and global publlc goods would conLrlbuLe Lo more [usL lnLernaLlonal
dlsLrlbuLlon
of wealLh and Lo Lhe reducLlon of lnequallLles beLween norLh and SouLh
8evenue generaLlon osslble revenues depend on Lhe raLe and scale of lnLroducLlon All esLlmaLes
suggesL
LhaL subsLanLlal revenues can be achleved wlLh a raLher low Lax raLe Lven when assumlng a
reducLlon of
13

LransacLlon volumes due Lo LaxaLlon ln norLh Amerlca and Lurope esLlmaLed Lax revenues would
range
beLween 03 and 24 of world Cu lf all LransacLlons are covered AL Lhe Luropean level even a
Lax
aL a mlnlmal raLe of 001 would generaLe lncome of abouL Lu8100 bllllon per year (up Lo Lu8300
bllllon for a raLe of 01) 4 Clobally more Lhan double Lhe amounL could be expecLed wlLh Lhe ma[or
parL sLemmlng from derlvaLe LransacLlons on organlsed exchanges whlch are Lhe easlesL Lo collecL
8egulaLlon Accordlng Lo Lhe AusLrlan lnsLlLuLe for Lconomlc 8esearch (WllC) a general and
unlform
l11 on all klnds of flnanclal asseL LransacLlons would have a sLablllslng effecL on flnanclal markeLs
even
lf lnLroduced aL a low raLe 1he l11 would lncrease Lhe cosL of speculaLlve Lradlng and Lhus help
mlLlgaLe
flucLuaLlons of asseL prlces ln sLock markeLs of exchange raLes and commodlLy prlces AL Lhe same
Llme lL wlll have mlnlmal effecL on Lhe real economy (especlally compared Lo oLher measures such as
an
lncreased vA1) and Lhereby lmprove Lhe general macroeconomlc performance
leaslblllLy A general l11 ls Lechnlcally feaslble because of Lhe use of sLandardlzed elecLronlc
seLLlemenL
sysLems ClrcumvenLlon of elecLronlc plaLforms would be very cosLly and hence unllkely 1he l11
could be lnLroduced sLep by sLep boLh ln Lerms of geographlc expanslon and coverage of Lypes of
flnanclal
LransacLlons 8eglonal lnLroducLlon ls posslble uue Lo hlgh concenLraLlon of Lradlng ln Lhe shorL run
2 hLLp//wwwcldseorg/Area_of_work/uevelopmenL_flnance/?ld281
3 CluSL supporLed a LwoLler (LworaLe) C11 (based on Lhe model of rofessor aul8ernd Spahn)
whlch ls a verslon of Lhe proposal popularlsed by !ames
1obln ln Lhe 1970s Accordlng Lo Lhls concepL a low raLe Lax would be applled on ordlnary forelgn
exchange LransacLlons whlle a hlgher normallzaLlon"
duLy would be levled durlng perlods of hlgh currency volaLlllLy resulLlng from speculaLlon wlLh Lhe
alm of sLablllzlng Lhe respecLlve exchange raLes 1hus
such a C11 would slmulLaneously moderaLe Lhe effecLs of rapld speculaLlve runs on currencles Lhus
conLrlbuLlng Lo Lhe prevenLlon of ma[or currency crlses
14

and generaLe subsLanLlal revenue for developmenL flnanclng
4 8ased on flgures from SchulmelsLer SLephan A Ceneral llnanclal 1ransacLlon 1ax A ShorL CuL of
Lhe ros Lhe Cons and a roposal WllC Worklng
apers no 344 CcLober 2009
CluSL ls an lnLernaLlonal alllance of CaLhollc developmenL agencles lLs members share a common
sLraLegy ln Lhelr efforLs Lo eradlcaLe
poverLy and esLabllsh global [usLlce CluSL's advocacy work covers global governance resources for
developmenL cllmaLe [usLlce food
agrlculLure susLalnable Lrade and buslness human rlghLs
1hls documenL was wrlLLen by Plldegard Wlpfel (kCC) on behalf of Lhe CluSL 8esources for
uevelopmenL Worklng group 1hanks
also go Lo ChrlsLlna Weller (CAlCu) !ean MerckaerL (CClu 1erre Solldalre) Markus 8run
(lasLenopfer) Ceorg SLoll (Mlsereor) and
lanny Llesegang for Lhelr lnpuLs
1he CluSL 8esources for uevelopmenL Worklng Croup ls led by Lhe followlng organlzaLlons CAlCu
(unlLed klngdom) CClu 1erre
Solldalre (lrance) CenLer of Concern (unlLed SLaLes) lasLenopfer (SwlLzerland) kCC (AusLrla)
Mlsereor (Cermany) 1rcalre (lreland)
vnMlCCSlv (lLaly) and AL8CAn (Spaln)
lLs common long Lerm ob[ecLlves are Lo lncrease and susLaln resources avallable for developlng
counLrles Lo flnance and declde ln an lncluslve
manner upon Lhelr developmenL and Lo lncrease Lhe declslonmaklng volce of counLrles whlch are
mosL affecLed by global pollcles
whlch lmpacL on Lhelr developmenL