April 8, 2010IMF throws weight behind tax on profits
THE International Monetary Fund is poised to recommend an unprecedented ''excess profits tax'' on banks worldwide.
The Fund is expected to suggest the tax - effectively on banks' cash flow - as one of the best ways governments can raise significant amounts from banks without distorting the financial system.
The tax will be announced alongside an Obama-style banking levy, which the IMF will also rubber-stamp in its report, to be published at its spring meetings this month.
Advertisement: Story continues below The IMF was commissioned by the G20 leading economies last year to investigate new taxes on banks.
Although most attention initially was on so-called Tobin taxes, which levy small charges on financial transactions (a model promoted by campaign groups as the Robin Hood Tax), the Fund is likely to rule them out as a serious prospect.
The move is likely to frustrate the British Prime Minister, Gordon Brown, who threw his weight behind the transactions tax in the early stages of the research.
Many observers assumed this would mean the Fund would give its central recommendation to a form of balance sheet levy, which has already been implemented in Sweden.
However, the Fund is also considering giving an equally important recommendation to a tax which simply levies a charge on bank profits, beyond a certain level.
The advantage of the balance sheet levy is that it should encourage banks not to build excessively large stocks of assets. The benefit of the excess profits tax is that it is thought to be the most efficient way to raise money from banks, and could in time replace regular business taxes as the best way of generating revenue from financial institutions.
Michael Devereux, director of the Oxford University Centre for Business Taxation, said: ''Although this is effectively a tax on cash flow, if I were the IMF, I would present it as an excess profits tax - additional to everything else and particular to banking because that is whom we would like to tax.
''Unlike a balance sheet levy, it is not designed to change behaviour and stop them from doing silly things. It is a way of collecting money - the most efficient way.''
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