Avoiding the Pitfalls in Taxing Financial Intermediation
Enthusiasts for financial sector tax reform typically come either with some form of "flat tax" (including value added tax on financial services, zero taxation on capital income, or a universal transactions tax) or advocating corrective ta...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2003/05/2378821/avoiding-pitfalls-taxing-financial-intermediation http://hdl.handle.net/10986/18184 |
| Summary: | Enthusiasts for financial sector tax
reform typically come either with some form of "flat
tax" (including value added tax on financial services,
zero taxation on capital income, or a universal transactions
tax) or advocating corrective taxes designed to offset
market failures or achieve other targeted objectives. As a
result the tax systems in most countries often end up with a
complex mixture. Honohan argues that practical policy for
taxation of the financial sector needs to take into account
two key features of the sector: its capacity for arbitrage
and its sensitivity to inflation and thus to nonindexed
taxes. Where these aspects have been neglected, poorly
constructed tax systems-whether the consequence of a drive
for revenue or of misdirected sophistication-often have
sizable unexpected side effects. A defensive stance making
the minimization of such distortions as its cornerstone is
the best policy. |
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