 "Europe, US propose transaction tax on trading")
Taking cue from countries like India, the European Union (EU) too has decided to move forward with its controversial Financial Transactions Tax (FTT). This is similar to securities transaction tax levied on equity trading in Indian markets.
In the US, Senator Tom Harkin and Congressman Peter DeFazio are proposing to introduce a similar tax, which will collect 3bps on every trade and raise an anticipated $352 billion over ten years. The same two senators had proposed the tax on 2009 and 2011 when Wall Street was under attack from socialist groups. This time, the senators are contending that Wall Street can afford it.
Even though the SEC has not taken any action against high frequency traders, the US senators are positioning this to curtail volatility caused by speculative traders who flip hundreds of stocks every second, market reporting website Advance Trading said.
In Europe, media reports say the EU has proposed a FTT this week. The European Commission has tabled its formal proposals for financial transaction tax (FTT), which has been signed up to by 11 member states, a BBC report on Wednesday said. “Announcing the plans on 14 February 2013, Taxation Commissioner Algirdas Semeta confirmed the levy would be set at 0.1% for shares and bonds, and 0.01% for derivatives,” BBC said.
News reports suggested, the FTT could raise 30-35 billion euros or $40-48 billion a year. The focus on derivatives is seen as a way to punish the toxic instruments that were used by banks during the financial crisis. Despite opposition by the UK, four of the EU’s biggest economies France, Germany and Spain are among those favouring the tax as way to raise public funds and curb high speed trading by financial institutions.
Though UK abstained, according to a Euromoney report, it is expected that the tax will apply to any trades involving at least one counterparty based in any of the participating countries. This is despite if the transaction takes place outside of the tax zone. This has sparked fears that FTT could entangle other non-participating countries in its web.
Market analysts in India said, this will only strengthen finance ministry’s case for not doing away with STT on equity and also aide plans to impose such a tax in the commodity derivative segment. In India, STT is levied as 0.017 per cent on derivative trading and 0.025 per cent on cash equities. Finance minister P Chidambaram had proposed a commodity transaction tax a few years ago but it could not be levied as the exchanges argued that the segment was in its developing stage. Since 2007-08, average daily non-agri commodity trading volumes in the country has jumped from Rs around Rs 10,000 crore to Rs 50,000 crore. The volumes are mainly in energy, metal and bullion contracts. India collects around Rs 6,000-Rs8,000 crore through STT every year.
Chidambaram will present his union budget on February 28.