The Great Debate UK

“Tobin Tax” is a step backward for financial markets

–Tanuja Randery is the CEO of trading services firm MarketPrizm. The opinions expressed are her own.—

As the economic downturn continues to drag on, the cynics amongst us might be forgiven for thinking that the “Tobin Tax” is a move by politicians to curry public favour by taking punitive measures against the financial services sector.

On 14 February, 11 out of the 17 euro zone nations agreed to implement the Financial Transaction Tax (FTT), a tax on bond, equity and derivatives transactions, in January 2014.  Two countries have already rolled it out — France, last August, and Italy, which followed suit on 1 March this year.  The UK, Netherlands and Sweden are all strongly opposed.

On the face of it, the FTT appears small — 0.1%.  However, the tax is cumulative and cascading, affecting a chain of trading and clearing including vendors, brokers and clearing members. Each sale along the chain will be taxed.  Also, the tax will be levied on any bank registered in a country that does apply the tax, even if the transaction takes place in a country that hasn’t implemented it. This means that if a UK bank does a trade with an Italian bank, they will be taxed twice, with both the UK’s domestic stamp duty as well as the FTT.