Balancing the regulation and taxation of banking

Chaudhry, Sajid Mukhtar, Mullineux, Andrew and Agarwal, Natasha (2015). Balancing the regulation and taxation of banking. International Review of Financial Analysis, 42 , pp. 38-52.

Abstract

This study gives an overview of bank taxation as an alternative to prudential regulations or non-revenue taxation. We review existing bank taxation with a view to eliminating distortions in the tax system, which have incentivized banks to engage in risky activities in the past. We furthermore analyze taxation of financial instruments trading and taxation of banking products and services and their ability to finance resolution mechanisms for banks and to ensure their stability. In this respect, we put forward the following arguments: (1) that a financial transaction tax is economically inefficient and potentially costly for the economy and may not protect taxpayers; (2) that a bank levy used to finance deposit guarantee and bank resolution mechanisms is potentially useful for financial stability, but that it poses the threat of double taxation, together with the proposed Basel-III Liquidity Coverage Ratio; and (3) that we support the elimination of exemption from value added tax (VAT) for financial services in order to provide banks with a level playing field, while retaining exemption for basic payments services. This is expected to improve efficiency by reducing the wasteful use of financial services.

Publication DOI: https://doi.org/10.1016/j.irfa.2015.01.020
Divisions: Aston Business School
Additional Information: © 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
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Related URLs: https://linking ... 057521915000496 (Publisher URL)
Published Date: 2015-12-01
Authors: Chaudhry, Sajid Mukhtar ( 0000-0001-8769-8920)
Mullineux, Andrew
Agarwal, Natasha

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