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The
Financial Sector Learning Program invites you to
Financial
Sector Policy Global Dialogue Series # 17: Taxation
of Financial Intermediation
Wednesday,
April 2, 2003
Brazil
- 11:00 AM - 2:00 PM
Mexico
- 8:00 AM - 11:00 AM
Ukraine
- 5:00 PM - 8:00 PM
Turkey
- 5:00 PM - 8:00 PM
Washington,
D.C - 9:00 AM - 12:00 Noon
Washington,
D.C. Location:
World
Bank Institute Distance Learning Center
MC-C2
137 (Distance Learning Classroom)
This Global Dialogue
session provides a framework for assessing the many proposals for tax policy
reform affecting the financial sector. Such proposals typically come from one or
other of two powerful perspectives. Either the reformer is an enthusiast for a
big simplification, usually some form of “flat tax” (including VAT on
financial services, a universal transactions tax, or zero taxation on capital
income) or she is the advocate of subtle corrective taxation designed to offset
some of the many market failures to which the financial sector is prone or to
achieve other targeted objectives. In practice these two perspectives can
conflict rather severely. As a result, the tax systems in most countries often
end up as a complex mixture defying any straightforward rationalization. The big
flat-tax ideas are diluted and modified, the corrective taxes may misfire by
conflicting with others introduced for different reasons.
Research concludes that
neither of these reform approaches should be taken to an extreme.
However, while none of
the three big “flat tax” reform ideas provides a complete and practical
solution, each has lessons for a good system.
Even if
practicalities impede its introduction as such, the notion of a VAT on
financial services represents a useful benchmark against which existing and
proposed indirect taxes can be compared for their burden and impact.
Significant
financial transactions taxes are hard to justify on theoretical grounds and
should be resorted to only as a transitory device when fiscal revenue is
under particular pressure.
Heavy emphasis on
the taxation of income from capital should be avoided.
Attempts at corrective
taxation should be undertaken with extreme caution as history suggests that
unintended side-effects or deadweight losses may dominate the results. This
implies that special tax-based schemes to encourage stock exchange listing,
household saving and the like, should be viewed with caution, bearing in mind
the substantial opportunity cost in terms of lost revenue and the questionable
gains.
Instead, policy
advisors should focus on avoiding two distinctive traps, often neglected, and
into which financial sector taxation can fall, namely (a) the sector’s unique
capacity for arbitrage and (b) its sensitivity to inflation and thus to
non-indexed taxes. All financial sector taxes need to be designed to be as
arbitrage-proof, and as inflation-proof as possible.
Mr. Thomas Glaessner,
Lead Financial Economist, Financial Policy
and Strategy Department, World Bank will act as moderator
Mr. Patrick Honohan,
Advisor, Financial Sector Operations and
Policy Department, World Bank will speak on overall policy reform framework.
Mr. Andrei Kirilenko,
Economist, International Capital Markets
Department, International Monetary Fund will speak on the special topic of
financial transactions taxes.
Please
feel free to forward this announcement to clients and colleagues who are
interested in this topic.
For
local registration information, please see the Activity Announcement <<Taxation
Announcement.doc>>
For more
information regarding this Global Dialogue, please visit: http://www.worldbank.org/wbi/banking/finsecpolicy/globaldialogues/dl17/
or
contact:
szhao@worldbank.org
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