CHAPTER 1

MEANING

A bank tax ("bank levy") is a tax on banks. One of the earliest modern uses of the term "bank
tax" occurred in the context of the Financial crisis of 2007-2010.0n 16 , April 2010, the
International Monetary Fund (IMF) proposed the idea of a "financial stability contribution"
(FSC), which many media have referred to as a "bank tax." It was proposed as one of three
possible options to deal with the crisis. These options were presented in response to an earlier
request of the 6-20 leaders, at the September 2009 Pittsburgh summit, for an investigative report
on all possible options to deal with the crisis. Both before and after that IMF report, there was
considerable debate amongst national leaders as to whether such a "bank tax" should be global or
semi global, or whether it should be applied only in certain nations.

The integration of world capital markets carries important implications for the design and impact
of tax policies .This paper evaluates research findings on international taxation, drawings
attention to connections and inconsistence between theoretical and empirical observations.

Government do not adopt policies that are consistent with the forecast, Corporate income is
taxed at high rates by wealthy countries, and most countries either exempt foreign source of
income of income of domestic multinationals from tax, or else provide credits rather than
deductions for taxes paid abroad. Furthermore, individual investors can use various methods to
avoid domestic taxes on their foreign source incomes, in the process also avoiding taxes on their
domestic-source incomes.

1
 CHAPTER 2
INTRODUCTION TO TAXATION

Government plays an important role in most modern economies. In the United States, the role of
the government extends from providing for national defense to providing social security and
Medicare to the elderly. In order to provide for these program and services, the government
needs revenues. The sources of the revenues comes from taxes that are paid for by households. In
this chapter, we’ll go over a quick overview of taxes and look at how taxes affect economic
decisions.

The design of sensible tax policies for modern economies require that careful attention be paid to
their international ramifications. This is a potential daunting prospects sense the analysis of a tax
design in open economic details all of the complications and intricacies that appear in close
economies with the addition of many others, a sense multiple, possible interacting, tax system
are no less borrowing for researcher interested in studying the impact of taxation in open
economics. Fortunately the parallel development of theoretical and imperial research on taxation
in open economics of its straight forward and general guidance for understanding the
determinants and effect of tax policies as well as normative significance.

The propose of this chapter is to review the analysis of international taxation, drawings,
connections, to research finding that are familiar from the analysis of taxation in the closed
economies.

2
 CHAPTER 3
SOURCES OF FEDERAL GOVERNMENT REVENUE

Taxes has two parts:

(1)A base and

(2) Rate structure.

The base is the measure or value upon which a tax is levied. The base can be measures such as
income, sales purchases, home value, corporate profits, etc... The tax rate structure is the
percentage of the tax base that must be paid in taxes. For example if you pay 35% of your
income in taxes, then your income is the tax base, and 35% is the tax rate structure. The tax base
can either be a stock measure (property, inheritance) or a flow measure (income, sales).

(1) Individual Income Tax

This is the tax you are most familiar with. Individuals must pay this tax by April 15. During the
year the government withholds a portion of each pay check as tax payments. Table shows that
individual income tax has been and still is the single largest component of federal revenue over
time.

(2) Social Insurance Taxes

These taxes are levied on income to pay for Social Security (retirement fund for the elderly) and
Medicare (health care for the elderly) Note how these taxes has increased over time. In 1960,
social insurance taxes comprised only about16% of total revenues, by 2008 that amount had
reached almost 35%

3
(3) Corporate Taxes

The corporate tax is a tax levied on the earnings of corporations. This tax was an important
source of revenues in the mid-20th century, but has become less important over time. The
existence of tax shelters, laws to stimulate R&D, and complex rules regarding taxing
multinational corporations have all led to a decline in the importance of corporate taxes as a
source of federal revenue.

(4) Other Taxes

The other sources of government revenue are relatively minor. Excise taxes are taxes that are
levied on the sale of certain products such as gasoline, cigarettes, alcohol, etc...Estate taxes
(sometimes called the “death tax”) are levied on estates of individuals when they passed away.
Custom duties are taxes levied on goods imported to the United States such as foreign cars or
wines. Combined, these sources of federal revenues accounted for only 6.6% of total revenues in
2008.

4
 CHAPTER 4
TYPES OF TAXES

(l) Proportional Tax (Flat Tax)

A proportional tax is a tax whose burden is the same rate regardless of the income earned by the
household. For example under a proportional tax system, if the income tax rate is 13%, then a
household who earns $10,000 will pay 13%of the their income in taxes, while a household who
earns $10 million will also pay 13%of their income as taxes.

(2) Progressive Tax

A progressive tax is a tax that exacts a higher percentage of income from higher income
households than from lower income households. The current income tax system in the United
States is a progressive tax. For example, under a progressive tax system, a household that earns
$10,000 would pay a 5% income tax while a household that earns $10 million would have to pay
a 35% income tax.

(3) Regressive Tax

A regressive tax means that higher income households pay less in taxes as a percentage of their
income than lower income families. Excise taxes and retail sales taxes are examples of regressive
taxes. Ian the context of the Financial crisis 2007-2010, in August 2009, British Financial
Services Authority chairman Lord Adair Turner said in prospect magazine that he would be
happy to consider a "tax on banks" to prevent excessive bonus payments.

5
 CHAPTER 5
IMF RESPONDS T0 G20 REQUEST

1. Financial stability contribution (FSC) or "Bank tax"

Financial stability contribution (FSC), or "Bank tax," or "Bank Levy," a tax on financial
institutions' balance sheets (most probably on their liabilities or possibly on their assets) whose
proceeds would most likely be used to create an insurance fund to bail them out in any future
crisis rather than making taxpayers pay for bailouts.

Much of the IMF’s report is devoted to the first option of a levy on all major financial
institutions balance sheets. Initially it could be imposed at a flat rate and later it could be refined
so that the institutions with the most risky portfolios would pay more than those who took on
fewer risks. Such a levy could be modeled on President Obama proposed Financial Crisis
Responsibility Fee that would raise US$90 billion over 10 years from US banks with assets of
more than US$50 billion. If Obama proposal is approved by the US Congress, the proceeds
would go into general government revenues. They would be used to pay the costs of the current
crisis rather than go into an insurance fund in anticipation of the next one.

2. Financial Activities Tax (FAT)

Raised on the sum of bank profits and bankers’ remuneration packages with the proceeds going
into general government revenues.

3. Financial Transaction Tax

A Financial Transactions Tax (FTT) — on a broad range of financial instruments including

stocks, bonds, currencies and derivatives. In November 2009, ( two months after the 2009 G-20
Pittsburgh summit of heads of state), the G2O nation Finance Ministers met in Scotland to
address the Financial crisis of 2007-2010. However, two months they were unwilling to endorse

6
the German proposal for a Financial Transactions Tax European Union leaders urged the
International Monetary Fund on Friday to consider a global tax on financial transactions in spite
of opposition from the US and doubts at the IMF itself. In a communiqué issued after a two-day
summit, the EU’s 27 national leaders stopped short of making a formal appeal for the
introduction of a so-called "Tobin tax" but made clear they regarded it as a potentially useful
revenue-raising instrument. While the IMF does not endorse an FTT, it concedes that "The FTT
should not be dismissed on grounds of administrative practicality".

7
 CHAPTER 6
THE DIFFERENCE BETWEEN A BANK TAX AND A
FINANCIAL TRANSACTION TAX

A "bank tax" ("bank levy) is distinct from a financial transaction tax in the following way:

A financial transaction tax is a tax placed on a specific type (or types) of financial transaction for
a specific purpose (or purposes).

This term has been most commonly associated with the financial sector, as opposed to
consumption taxes paid by consumers.

If an institution never carries out the taxable transaction, then it will never be taxed on that
transaction

Furthermore, if it carries out only one such transaction, then it will only be taxed for that one
transaction.

As such, this tax is neither a Financial activities tax (FAT), nor a Financial Stability Contribution
(FSC) aka "Bank tax" for example.

This clarification is important in discussions about using a financial transaction tax as a tool to
selectively discourage excessive speculation without discouraging any other activity (as Keynes
originally envisioned it in the 1936)

8
 CHAPTER 7

Two simultaneous taxes considered in the European Union

On June 28, 2010, the European Union’s executive said it will study whether the European
Union should go alone in imposing a tax on financial transactions after g20 leaders failed to
agree on the issue.

The financial transactions tax would be separate from a bank levy, or a resolution levy, which
some governments are also proposing to impose on banks to insure them against the costs of any
future bailouts.

EU leaders instructed their finance ministers in May 2010 to work out by the end of October
2010, details for the banking levy, but any financial transaction tax remains much more
controversial.

9
 CHAPTER 8
CONTROVERSIES

Should the bank tax be global?

On August 30, 2009, British Financial Services Authority chairman Lord Adair Turner had said
it was "ridiculous" to think he would propose a new tax on London and not the rest of the world.
However, in May, and June 2010, the government of

Canada expressed opposition to the bank tax becoming "global" in nature. Controversy over the
IMF's refusal to promote a financial-transactions tax

In a detailed analysis of the IMF’s proposals, Stephan Schulmeister of the Austrian Institute of
Economic Research finds that, "the assertion of the IMF paper, that [a financial-transaction tax]
‘is not focused on the core sources of financial instability, ’ does not seem to have a solid
foundation in the empirical evidence .Yet at least one independent commentator has endorsed the
IMF's view. In an alternative critique of the IMF's stance, Aldo Caliari of U.S. NGO the Center
of Concern said, " the naivete with which the IMF approaches its preferred mechanism-a bank
tax tied to systemic risks —is astonishing for such a knowledgeable institution, unless it is in fact
designed to let the financial sector off the hook. He argues that the FAT and FSC do not reduce
the overall risk in the system, and may increase it if banks are encouraged to feel that the taxes
provide a government guarantee of future bailouts. Nonetheless, a 2010 Tulane Law Review
article lent lukewarm support to President Obama's Financial Crisis Responsibility Fee, which is
a "bank tax" similar to the FSC. The Tulane article concluded that taxing financial transactions
would be "foolish", and that a bank tax "could constitute shrewd regulatory reform if done
properly.

10
Many governments, lacking tools to resolve systemically important
institutions in an orderly Regulation 1602 Food Products.

(a) IN GENERAL.

Tax does not apply to sales of food products for human consumption except as provided in
Regulations 1503, 1574, and 1603. (Grocers, in particulars, should note that tax applies to sales
of "hot prepared food products" as provided in Regulation 1603)

(l) "Food products" include cereal and cereal products, including malt and malt extracts, milk
and milk products, including ice cream, ice milk and ice cream and ice milk novelties, sherbets,
imitation ice cream and imitation ice milk, dried milk products, sugar of milk, milk shakes,
malted milks, and any other similar type beverages composed at least in part of milk or a milk
product and requiring the use of milk or a milk product in their preparation, oleomargarine, meat
and meat products, fish and fish products, eggs and egg products, vegetables and vegetable
products, including dehydrated vegetables, fruit and fruit products, spices and salt, coffee and
coffee substitutes, tea, cocoa and cocoa products, sugar and sugar products, baby foods, bakery
products, marshmallows, baking powder, baking soda, cream of tartar, coconut, flavoring
extracts, flour, gelatin, jelly powders, mustard, nuts, peanut butter, sauces, soups, syrups (for use
as an ingredient of, or upon, food products as defined herein), yeast cakes, olive oil, bouillon
cubes, meat extracts, popcorn, honey, jams, jellies, certo, mayonnaise, and flavored ice products,
including popsicles and snow cones. "Food products" include candy, confectionery, and chewing
gum.

(2) “Food products" include all fruit juices, vegetable juices, and other beverages, whether liquid
or frozen, including all beverages composed in part of fruit or vegetable juice and concentrates,
powders, or other bases for such beverages, and noncarbonated and non effervescent bottled
water intended for human consumption regardless of the method of delivery. "Food products"
does not included carbonated or effervescent bottled waters, spirituous, malt or vinous liquors, or
carbonated beverages .Sales of purified drinking water through vending machines or outlets in
retail stores where the water enters the machine or outlet through local supply lines and is
dispensed into the customer's own containers are exempt under Revenue and Taxation Code
section 6353.Tax does not apply to sales of water in bulk quantities of 50 gallons or more to an
individual for use in a residence when that residence is not serviced by lines, mains or pipes.

11
(3) "Food products" do not include medicines, cough drops, mineral oils, cigarettes, cigars,
tobacco, coloring extract, ice, and dog, cat, bird and other animal foods."

(4) "Food products" do not include any product for human consumption in liquid, powdered,
granular, tablet, capsule, lozenge, or pill form (A) which is described on its package or label as a
food supplement, food adjunct, dietary supplement, or dietary adjunct, and to any such product
(B) which is prescribed or designed to remedy specific dietary deficiencies or to increase or
decrease generally one or more of the following areas of human nutrition:

1. Vitamins

2. Proteins

3. Minerals

4. Caloric intake

In determining whether a product falls within category (B), it is important whether the
manufacturer has specially mixed or compounded ingredients for the purpose of providing a high
nutritional source. For example, protein supplements and vitamin pills are taxable as food
supplements. Other items, such as cod liver oil, halibut liver oil, and wheat germ oil, are
considered dietary supplements and thus subject to tax even though not specially compounded.
However, unusual foods such as brewer's yeast, wheat germ and seaweed are not subject to tax
except when their label states they are a food supplement or the equivalent. Finally, the
compounding of nutritional elements in items traditionally accepted as food does not make them
taxable, e.g., vitamin-enriched milk and high protein flour. Tax, however, does not apply to any
such products which either are exempted by Revenue and Taxation Code Section 6369,
respecting prescription medicines, or are complete dietary foods providing the user in the
recommended daily dosage with substantial amounts of vitamins, proteins, minerals and foods
providing adequate caloric intake. The latter is a food if it provides the user with the following
daily minimums:

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1. 70 grams of high quality protein

2. 900 calories

3. Minimum daily requirements as established by the regulations of the Federal Food and Drug
Administration of the following vitamins: A, B1, C, D, Riboflavin, and Niacin or Niacin amide
and the following minerals: Calcium, Phosphorus, Iron and Iodine When supplement or adjunct
products that do not meet the definition of food under this subdivision are furnished by a
physician to his or her own patient as part of a medically supervised weight loss program to treat
obesity, such products are regarded as "medicine." The sale and use of such products are exempt
from tax pursuant to subdivision of Regulation 1591 which interprets and explains Revenue and
Taxation Code section 6369.

(b) SALES OF COMBINATION PACKAGES.

When a package contains both food products (e.g., dried fruit) and nonfood products (e.g, wine,
or toys), the application of tax depends upon the essential character of the complete package. if
more than 10 percent of the retail value of the complete package, exclusive of the container,
represents the value of the nonfood products, a segregation must be made if the retailer has
documentation that would establish the”. cost of the individual component parts of the package,
with the tax measured by the retail selling price of such nonfood products.

When the retailer does not have documentation that would establish the cost of the individual
component parts of the package, and the package consists of nonfood' k products whose retail
selling price would exceed 10 percent of the retail selling price for the entire package, exclusive
of the container, the tax may be measured by the retail selling price of the entire package. If the
retail value of the non food products is 10 percent or less, exclusive of the container, and the
retail value of the container is 50 percent or less of the retail value of the entire package, the
selling price of the entire package is not subject to tax.

13
(c) SALES 0F NON-EDIBLE DECORATIONS.

When the sale of a cake or other bakery good for a single price includes non-edible decorations,
the application of tax depends upon the value of the non-edible merchandise versus the value of
the cake or bakery good. If more than 50 percent of the total retail value of the cake or bakery
good represents the value of non-edible decorations, a segregation must be made and the tax
measured by the retail selling price of such non-edible decorations. If the price of the non-edible
decoration is separately stated, then tax applies to such charge.

(d) FOOD PRODUCTS PROCESSED BY THE CONSUMER.

A commodity included in the term "food products" under Revenue and Taxation Code Section
6359 may be sold to a consumer to be processed and incorporated into a product which is for
human consumption but which is excluded from the term ”food products.” For example, grapes
may be sold to be used in making wine for consumption and not for resale. If the commodity
sold to the consumer is included in, 3 the term "food products" and if the product into which it is
incorporated is for human consumption, the sale of the commodity is Within the exemption
provided by this section.

14
 CHAPTER 9
KINDS OF TAXES

The Organization for Economic Co-operation and Development (OECD) publishes an analysis
of tax systems of member countries. As part of such analysis, OECD developed a definition and
system of classification of internal taxes, generally followed below. In addition, many countries
impose taxes (tariffs) on the import of goods.

Taxes on income

Income tax
Many jurisdictions tax the income of individuals and business entities, including corporations.
Generally the tax is imposed on net profits from business, net gains, and other income.
Computation of income subject to tax may be determined under accounting principles used in the
jurisdiction, which may be modified or replaced by tax law principles in the jurisdiction. The
incidence of taxation varies by system, and some systems may be viewed as progressive or
regressive. Rates of tax may vary or be constant (flat) by income level. Many systems allow
individuals certain personal allowances and other no business reductions to taxable income,
although business deductions tend to be favored over personal deductions.

Personal income tax is often collected on a pay-as-you-earn basis, with small corrections made
soon after the end of the tax year. These corrections take one of two forms: payments to the
government, for taxpayers who have not paid enough during the tax year; and tax refunds from
the government for those who have overpaid,‘ income tax systems will often have deductions
available that lessen the total tax liability by reducing total taxable income They may allow
losses from one type of ' income to be counted against another For example a loss on the stock
market may, be deducted against taxes paid on wages. Other tax systems may isolate the loss,
such. ‘ that business losses can only be deducted against business tax by carrying forward the it ‘
toss to later tax years.

Negative income tax

In economics, a negative income tax (abbreviated NIT) is a progressive income tax system
where people earning below a certain amount receive supplemental pay from the government
instead of paying taxes to the government.

15
Capital gains tax
Most jurisdictions imposing an income tax treat capital gains as part of income subject to tax.
Capital gain is generally a gain on sale of capital assets -that is, those assets not held for sale in
the ordinary course of business. Capital assets include personal assets in many jurisdictions.
Some jurisdictions provide preferential rates of tax or only partial taxation for capital gains.
Some jurisdictions impose different rates or levels of capital gains taxation based on the length
of time the asset was held. Because tax rates are often much lower for capital gains than for
ordinary income, "I there is widespread controversy and dispute about the proper definition of
capital. Some tax scholars have argued that differences in the ways different kinds of capital and
investment are taxed contribute to economic distortions.

Corporate tax

Corporate tax refers to income, capital, net worth, or other taxes imposed on corporations. Rates
of tax and the taxable base for corporations may differ from those for individuals or other taxable
persons.

Social security contributions

Many countries provide publicly funded retirement or health care systems in connection with
these systems, the country typically requires employers and/or employees to make compulsory
payments. These payments are often computed by reference to wages or earnings from self-
employment. Tax rates are generally fixed, but a different rate may be imposed on employers
than on employees”! Some systems provide an upper limit on earnings subject to the tax. A few
systems provide that the tax is payable only on wages above a particular amount. Such upper or
lower limits may apply for retirement but not health care components of the tax. Some have
argued that such taxes on wages are a form of "forced savings" and not really a tax, while others
point to redistribution through such systems between generations (from newer cohorts to older
cohorts) and across income levels (from higher income levels to lower income levels) which
suggest that such programs are really tax and spending programs. Some tax scholars argue that
supporting social security programs exclusively through taxes on wages, rather than through
broader taxes that include capital, creates distortions and underinvestment in human capital,
since the returns to such investments will be taxes as wages.

16
Taxes on payroll or workforce

Unemployment and similar taxes are often imposed on employers based on total payroll. These
taxes may be imposed in both the country and sub-country levels.

Taxes on property

Recurrent property taxes may be imposed on immovable property (real property) and some
classes of movable property. In addition, recurrent taxes may be imposed on net Wealth of
individuals or corporations. Many jurisdictions impose estate tax, gift tax or other inheritance
taxes on property at death or gift transfer. Some jurisdictions .impose taxes on financial or
capital transactions.

Property tax

A property tax (or millage tax) is an ad valorem tax levy on the value of property that the owner
of the property is required to pay to a government in which the property is situated. Multiple
jurisdictions may tax the same property. There are three general varieties of property: land,
improvements to land (immovable man-made things, e.g. buildings) and personal property
(movable things). Real estate or realty is the combination of land and improvements to land,

Property taxes are usually charged on a recurrent basis (e.g., yearly). A common type of property
tax is an annual charge on the ownership of real estate, where the tax base is the estimated value
of the property. For a period of over 150 years from 1695 a window tax was levied in England,
with the result that one can still see listed buildings with windows bricked up in order to save
their owners money. A similar tax on hearths existed in France and elsewhere, with similar
results. The two most common type of event driven property taxes are stamp duty, charged upon
change of ownership, and inheritance tax, which is imposed in many countries on the estates of
the deceased.

17
 In contrast with a tax on real estate (land and buildings), a Land Value Tax (or LVT) is levied
only on the unimproved value of the land ("land" in this instance may mean either the economic
term, i.e., all natural resources, or the natural resources associated with specific areas of the
Earth‘s surface: "lots" or "land parcels"). Proponents of land value tax argue that it is
economically justified, as it will not deter production, distort market mechanisms or otherwise
create deadweight losses the way other taxes do.

When real estate is held by a higher government unit or some other entity not subject A to
taxation by the local government. the taxing authority may receive a payment in lieu athletes to
compensate it for some or all of the foregone tax revenues.

in many jurisdictions (including many American states), there is a general tax levied periodically
on residents who own personal property (personality) within the jurisdiction. Vehicle and boat
registration fees are subsets of this kind of tax. The tax is often designed with blanket coverage
and large exceptions for things like food and clothing. Household goods are often exempt when
kept or used within the household. Any otherwise non-exempt object can lose its exemption if
regularly kept outside the household. Thus, tax collectors often monitor newspaper articles for
stories about wealthy people who have lent art to museums for public display, because the
artworks have then become subject to personal property tax.

Inheritance tax

Inheritance tax, estate tax, and death tax or duty are the names given to various taxes which arise
on the death of an individual. In United States tax law, there is a distinction between an estate tax
and an inheritance tax: the former taxes the personal representatives of the deceased, while the
latter taxes the beneficiaries of the estate. However, this distinction does not apply in other
jurisdictions; for example, if using this terminology UK inheritance tax would be an estate tax.

Expatriation tax

An expatriation tax is a tax on individuals who renounce their citizenship or residence. The tax is
often imposed based on a deemed disposition of, all: the individual's property.

18
 CHAPTER 10
TAXES ON GOODS AND SERVICES

Value added tax (Goods and Service)

A value added tax (VAT), also known as Goods and Services Tax (G.S.T), Single Business Tax,
or Turnover Tax in some countries, applies the equivalent of a sales tax to every operation that
creates value. To give an example, sheet steel is imported by a machine manufacturer. That
manufacturer will pay the VAT on the purchase price, remitting that amount to the government.
The manufacturer will then transform the steel into a machine, selling the machine for a higher
price to a wholesale distributor. The manufacturer will collect the VAT on the higher price, but
will remit to the government only the excess related to the "value added" (the price over the cost
of the sheet steel). The Wholesale distributor will then continue the process, charging the retail
distributor the VAT on the entire price to the retailer, but remitting only the amount related to the
distribution mark-up to the government. The last VAT amount is paid by the eventual retail
customer who cannot recover any of the previously paid VAT. For a VAT and sales tax of
identical rates, the total tax paid is the same, but it is paid at differing points in the process.

VAT is usually administrated by requiring the company to complete a VAT return, giving details
of VAT it has been charged (referred to as input tax) and VAT it has charged to others (referred
to as output tax). The difference between output tax and input tax is payable to the Local Tax
Authority.

Sales taxes

Sales taxes are levied when a commodity is sold to its final consumer. Retail organizations
contend that such taxes discourage retail sales. The question of whether they are generally
progressive or regressive is a subject of much current debate. People with higher incomes spend
a lower proportion of them, so a flat-rate sales tax will tend to be regressive. It is therefore
common to exempt food, utilities and other necessities from sales taxes, since poor people spend
a higher proportion of their incomes on these commodities, so such exemptions make the tax
more progressive. This is the classic "You pay for what you spend" tax, as only those .who spend
money on non-exempt (i.e. luxury) items pay the tax.

19
A small number of U.S. states rely entirely on sales taxes for state revenue, as those states do not
levy a state income tax. Such states tend to have a moderate to large amount of tourism or inter-
state travel that occurs within their borders, allowing the state to benefit from taxes from people
the state would otherwise not tax. In this way, the state is able to reduce the tax burden on its
citizens. The U.S. states that do not levy a state income tax are Alaska, Tennessee, Florida,
Nevada, South Dakota, Texas, Washington state, and Wyoming. Additionally, New Hampshire
and Tennessee levy state income taxes only on dividends and interest income. Of the above
states, only Alaska and New Hampshire do not levy a state sales tax. Additional information can
be obtained at the Federation of Tax Administrators Website. In the United States, there is a
growing movement for the replacement of all federal payroll and income taxes (both corporate
and personal) with a national retail tales tax and monthly tax rebate to households of citizens and
legal resident aliens. The tax proposal is named Fair Tax. In Canada, the federal sales tax is
called the Goods and Services tax (GST) and now stands at 5%. The provinces of British
Columbia, Saskatchewan, Manitoba, and Prince Edward Island also have a provincial sales tax
[PST]. The provinces of Nova Scotia, New Brunswick, Newfoundland & Labrador, and Ontario
have harmonized their provincial sales taxes with the GST-re Harmonized Sales Tax [HST], and
thus is a full VAT. The province of Quebec collects the Quebec Sales Tax [QST] which is based
on the GST with certain differences. Most businesses can claim back the GST, HST and QST
they pay, and so effectively it is the final consumer who pays the tax.

Other tax

Poll tax
A poll tax, also called a per capita tax, or capitation tax, is a tax that levies a set amount per
individual. It is an example of the concept of fixed tax. One of the earliest taxes mentioned in the
Bible of a half-Shekel per annum from each adult Jew (Ex. 30-11-16) was a form of poll tax. Poll
taxes are administratively cheap because they are easy to compute and collect and difficult to
cheat. Economists have considered poll taxes economically efficient because people are
presumed to be in fixed supply and poll taxes therefore do not lead to economic distortions.
However, poll taxes are Very unpopular because poorer people pay a higher proportion of their
income than richer people. In addition, the supply of people is-in fact not fixed over time: on
average, couples will choose to have fewer children if a poll tax is imposed. The introduction of
a poll tax in medieval England was the primary cause of the 1381 Peasants' Revolt. Scotland was
the first to be used to test the new poll tax in 1989 With England and Wales in 1990. The change
from a progressive local taxation based on property values to a single-rate form of taxation
regardless of ability to pay (the Community Charge, but more popularly referred to as the P011
Tax):

20
Bank tax
Financial transaction taxes including currency transaction taxes. Descriptive labels given some
taxes ad valorem and an ad valorem tax is one where the tax base is the value of a good, service,
or property. Sales taxes, tariffs, property taxes, inheritance taxes, and value added taxes are
different types of ad valorem tax. An ad valorem tax is typically imposed at the time of a
transaction (sales tax or value added tax (VAT) but it may be imposed on an annual basis
(property tax) or in connection with another significant event (inheritance tax or tariffs).In
contrast to ad valorem taxation is a per unit tax, where the tax base is the quantity of something,
regardless of its price. An excise tax is an example.

Environmental tax

This includes natural resources consumption tax, greenhouse gas tax (Carbon tax), "sulfuric tax",
and others. The stated purpose is to reduce the environmental impact by reprising, proportional,
progressive, regressive, and lump-sum. An important feature of tax systems is the percentage of
the tax burden as it relates to income or consumption. The terms progressive, regressive, and
proportional are used to describe the way the rate progresses from low to high, from high to low,
or proportionally. The terms describe a distribution effect, which can be applied to any type of
tax tystem (income or consumption) that meets the definition. A progressive tax is a tax imposed
so that the effective tax rate increases as the amount to which the rate is applied increases. The
opposite of a progressive tax is a regressive tax, where the effective tax rate decreases as the
amount to which the rate is applied increases. This effect is commonly produced where means
testing is used to withdraw tax allowances or state benefits. In between is a proportional tax,
where the effective tax rate is fixed, while the amount to which the rate is applied increases.

21
 CHAPTER 11
DIRECT TAX AND INDIRECT TAX

Taxes are sometimes referred to as "direct taxes" or "indirect taxes". The meaning of these terms
can vary in different contexts, which can sometimes lead to confusion. An economic definition,
by Atkinson, states that .direct taxes may be adjusted to the individual characteristics of the
taxpayer, whereas indirect taxes are levied on transactions irrespective of the circumstances of
buyer or seller. According to this definition, for example, income tax is "direct", and sales tax is
"indirect". In law, the terms may have different meanings. In U.S. constitutional law, for
instance, direct taxes refer to poll taxes and property taxes, which are based on simple existence
or ownership. Indirect taxes are imposed on events, rights, privileges, and activities. Thus, a tax
on the sale of property would be considered an indirect tax, whereas the tax on simply owning
the property itself would be a direct tax.

Fees and effective taxes

Governments may charge user fees, tolls, or other types of assessments in exchange of particular
goods, services, or use of property. These are generally not considered taxes, as long as they are
levied as payment for a direct benefit to the individual paying. Such fees include:

Tolls:

A fee charged to travel via a road, bridge, tunnel, canal, waterway or other transportation
facilities. Historically tolls have been used to pay for public bridge, toad and tunnel projects.
They have also been used in privately constructed transport links. The toll is likely to be a fixed
charge, possibly graduated for vehicle type, or for distance on long routes.

22
 CHAPTER 12
HISTORY ON TAXATION IN INTERNATIONAL BANKING

The first known system of taxation was in Ancient Egypt around 3000-2800 BC in the first
dynasty of the Old Kingdom. The earliest and most widespread form of taxation was the corvee
and tithe. The corvee was forced labor provided to the state by peasants too poor to pay other
forms of taxation (labor in ancient Egyptian is a synonym for taxes) Records from the time
document that the pharaoh would conduct a biennial tour of the kingdom, collecting tithes from
the people. Other records are granary receipts on limestone flakes and papyrus .Early taxation is
also described in the Bible. In Genesis (chapter 47, verse 24 the New International Version), it
states "But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may
keep as seed for the fields and as food for yourselves and your households and Your children".
Joseph was telling the people of Egypt how to divide their crop, providing a portion to the
Pharaoh. A share (20%) of the crop was the tax (in this Case, a special rather than an ordinary
tax, as it was gathered against an expected famine).In the Persian Empire, a regulated and
sustainable tax system was introduced by Darius I the Great in 500 BC the Persian system of
taxation was tailored to each Satrapy (the area ruled by a Satrap or provincial governor). At
differing times, there Were between 20 and 30 Satrapies in the Empire and each was assessed
according to its supposed productivity. It was the responsibility of the Satrap to collect the due
amount and to send it to the treasury, after deducting his expenses (the expenses and the power
of deciding precisely how and from whom to raise the money in the province, offer maximum
opportunity for rich pickings). The quantities demanded from the various provinces gave a vivid
picture of their economic potential. For instance, Babylon was assessed for the highest amount
and for a startling mixture of Commodities; 1,000 silver talents and four months supply of food
for the army.

23
 CHAPTER 13
TAXATION TRENDS

Numerous records of government tax collection in Europe since at least the 17th century is still
available today. But taxation levels are hard to compare to the size and flow of the economy
since production numbers are not as readily available. Government expenditures and revenue in
France during the 17th century went from about 24.30 million lives in 1600-10 to about 126.86
million livers in 1650-59 to about 117.99 million livers in 1700-10 when government debt had
reached 1.6 billion livers. In 1780-89, it reached 421.50 million lives. Taxation as a percentage
of production of final goods may have reached 15%-2000 during the 17th century in places such
as France, the Netherlands, and Scandinavia. During the war-filled years of the eighteenth and
early nineteenth century, tax rates in Europe increased dramatically as war became more
expensive and governments became more centralized and adept at gathering taxes. This increase
was greatest in England, Peter Mathias and Patrick O'Brien found that the tax burden increased
by 8500 over this period. Another study confirmed this number, finding that per capita tax
revenues had grown almost six fold over the eighteenth century, but that steady economic growth
had made the real burden on each individual only double over this period before the industrial
revolution. Effective tax rates were higher in Britain than France the years before the French
Revolution, twice in per capita income comparison, but they were mostly placed on international
trade. In France, taxes were lower but the burden was mainly on landowners, individuals, and
internal trade and thus created far more resentment. Taxation as a percentage of GDP in 2003
was 56.1% in Denmark, 54.5% in France, 49.0% in the Euro area, 42.6% in the United Kingdom,
35.700 in the United States, 35.7% in Ireland, and among all OECD members an average of
40.7%.

24
 CHAPTER 14
FORMS OF TAXATION

Other obsolete forms of taxation include:

Scutage
Which is paid in lieu of military service strictly speaking, it is a commutation of a non-tax
obligation rather than a tax as such but functioning as a tax in practice

Title
A tax-like payment (one tenth of one’s earning or agriculture produce), paid to the Church (and
thus too specific to be a tax in strict technical terms). This should not be confused with the
modern practice of the same name which is normally voluntary.

Danegeld
A medieval land tax originally raised to pay off raiding Danes and later used to fund military
expenditures.

Carucage
A tax which replaced the danegeld in England.

Socage
A feudal tax system based on land rent.

25
Burgage
A feudal tax system based on land rent.

Some principalities taxed windows, doors, or cabinets to reduce consumption of imported glass
and hardware. Armoires, hutches, and wardrobes were employed to evade taxes on doors and
cabinets. In some circumstances, taxes are also used to enforce public policy like congestion
charge (to cut road traffic and encourage public transport) in London. In Tsarist Russia, taxes
were clamped on beards. Today, one of the most-complicated taxation systems worldwide is in
Germany. Three quarters of the world's taxation literature refers to the German system.[citation
needed] Under the German system, there are 118 laws, 185 forms, and 96,000 regulations,
spending €3.7 billion to collect the income tax.[citation needed] In the United States, the IRS has
about 1,177 forms and instructions,28.4111 megabytes of Internal Revenue Code which
contained 3.8 million words as of 1 February 2010, numerous tax regulations in the Code of
Federal Regulations and supplementary material in the Internal Revenue Bulletin. Today,
governments in more advanced economies (i.e. Europe and North America) tend to rely more on
direct taxes, while developing economies (i.e. India and several African countries) rely more on
indirect taxes.

26
 CHAPTER 15
ECONOMIC EFFECTS

In economic terms, taxation transfers wealth from households or businesses to the government of
a nation. The side-effects of taxation (such as economic distortions) and theories about how best
to tax are an important subject in microeconomics. Taxation is almost never a simple transfer of
wealth. Economic theories of taxation approach the question of how to maximize economic
welfare through taxation.

Tax incidence

Law establishes from whom a tax is collected. In many countries, taxes are imposed on business
(such as corporate taxes or portions of payroll taxes). However, who ultimately pays the tax (the
tax "burden") is determined by the marketplace as taxes become embedded into production costs.
Economic theory suggests that the economic effect of tax does not necessarily fall at the point
where it is legally levied. For instance, a tax on employment paid by employers will impact on
the employee, at least in the long run. The greatest share of the tax burden tends to fall on the
most inelastic factor involved-the part of the transaction which is affected least by a change in
price. So, for instance, a tax on wages in a town will (at least in the long run) affect property-
owners in that area. Depending on how quantities supplied and demanded vary with price (the
"elasticities" of supply and demand), a tax can be absorbed by the seller (in the form of lower
pre-tax prices), or by the buyer (in the form. of higher post-tax prices). If the elasticity of supply
is low, more of the tax Will be paid by the supplier. If the elasticity of demand is low, more will
be paid by the customer and, contrariwise for the cases where those elasticities are high. If the
seller is a competitive firm, the tax burden is distributed over the factors of production
depending on the elasticities thereof; this includes workers (in the form of lower wages), capital
investors (in the form of loss to shareholders), landowners (in the form of lower rents),
entrepreneurs (in the form of lower wages of superintendence) and customers (in the form of
higher prices).To show this relationship, suppose that the market price of a product is $1.00, and
that a $0.50 tax is imposed on the product that, by law, is to be collected from the seller. If the
product has an elastic demand, a greater portion of the tax will be absorbed by the seller. This is
because goods with elastic demand cause a large decline in quantity demanded for a small
increase in price. Therefore, in order to stabilize sales, the seller absorbs more of the additional
tax burden. For example, the seller might drop the price of the product to $0.70 so that, after
adding in the tax, the buyer pays a total of $1.20, or $0.20 more than he did before the $0.50 tax

27
was imposed. In this example, the buyer has paid $0.20 of the $0.50 tax (in the form of a post-tax
price) and the seller has paid the remaining $0.30 (in the form of a lower pre-tax price)

Increased economic welfare

Government spending
The purpose of taxation is to provide for government spending without inflation. The provision
of public goods such as roads and other infrastructure, schools, a social safety net, health care for
the indigent, national defense, law enforcement, and a courts system increases the economic
welfare of society if the benefit outweighs the costs involved.

Pigovian taxes
The existence of a tax can increase economic efficiency in some cases. If there is a negative
externality associated with a good, meaning that it has negative effects not felt by the consumer,
then a free market will trade too much of that good. By taxing the good, the government can
increase overall welfare as well as raising revenue. This type of tax is called a Pigovian tax, after
economist Arthur Pious.

Reduced economic welfare

Most taxes have side effects that reduce economic welfare, either by mandating unproductive
labor (compliance costs) or by creating distortions to economic incentives (deadweight loss and
perverse incentives).

Cost of compliance
Although governments must spend money on tax collection activities, some of the costs,
particularly for keeping records and filling out forms, are borne by businesses and by private
individuals. These are collectively called costs of compliance. More complex tax systems tend to
have higher compliance costs. This fact can be used as the basis for practical or moral arguments
in favor of tax simplification (such as the Fair Tax or One Tax, and some flat tax proposals).

28
Deadweight costs of taxation
Diagram illustrating deadweight costs of taxes. In the absence of negative externalities, the
introduction of taxes into a market reduces economic efficiency by causing deadweight loss. In a
competitive market the price of a particular economic good adjusts to ensure that all trades which
benefit both the buyer and the seller of a good occur. The introduction of a tax causes the price
received by the seller to be less than the cost to the buyer by the amount of the tax. This causes
fewer transactions to occur, which reduces economic welfare; the individuals or businesses
involved are less well off than before the tax. The tax burden and the amount of deadweight cost
is dependent on the elasticity of supply and demand for the good taxed. Most taxes including
income tax and sales tax can have significant deadweight costs. The only Way to avoid
deadweight costs in an economy that is generally competitive is to refrain from taxes that change
economic incentives. Such taxes include the land value tax, Deadweight loss does not account
for the effect taxes have in leveling the business playing field. Businesses that have more money
are better suited to fend off competition. It is common that an industry having a few but very
large corporations have a very high barrier of entry of new entrants in the marketplace. This is
due to the fact that the larger the corporation the better the position of it to negotiate with
suppliers. Also the financial position can provide the means for the company to be able to
operate for extended periods of time with very low or negative profits, in order to push the
competition out of business. The taxation of profits in a progressive manner would reduce the
barriers for entry in a specific market for new entrant’s thereby increasing competition. This
would ultimately benefit the consumers since increased competition benefits consumers.

Perverse incentives

Complexity of the tax code in developed economies offer perverse tax incentives. The more
details of tax policy there are, the more opportunities for legal tax avoidance and illegal tax
evasion. These not only result in lost revenue, but involve additional costs: for instance,
payments made for tax advice are essentially deadweight costs because they add no wealth to the
economy. Perverse incentives also occur because of non-taxable ‘hidden’ transactions; for
instance, a sale from one company to another might be liable for sales tax, but if the same goods
were shipped from one branch of a corporation to another, no tax would be payable. To address
these issues, economists often suggest simple and transparent tax structures which avoid
providing loopholes. Sales tax, for instance, can be replaced with a value added tax which
disregards intermediate transactions.

29
Reduced production

If a tax is paid on outsourced services that is not also charged on services performed for oneself,
then it may be cheaper to perform the services oneself than to pay someone else even considering
losses in economic efficiency.

For example, suppose jobs A and B are both valued at $1 on the market. And suppose that
because of your unique abilities, you can do job A twice over (100% extra output) in the same
effort as it would take you to do job B. But job B is the one that you need done right now. Under
perfect division of labor, you would do job A and somebody else would do job B.

Your unique abilities would always be rewarded. Income taxation has the worst effect on
division of labor in the form of barter. Suppose that the person doing job B is actually interested
in having job A done for him. Now suppose you could amazingly do job A four times over,
selling half your work on the market for cash just to pay your tax bill.

The other half of the work you do for somebody who does job B twice over but he has to sell off
half to pay his tax bill. You're left with one unit of job B, but only if you were 400% as
productive doing job A In this case of 50% tax on barter income, anything less than 400%
productivity will cause the division of labor to fail.

In summary, depending on the situation a 50% tax rate can cause the division of labor lo fail
even where productivity gains of up to 300% would have resulted. Even a mere 30% tax rate can
negate the advantage of a 100% productivity gain.

30
 CHAPTER 16
TAXATION IN DEVELOPING COUNTRIES

Researchers for BPS PEAKS stated that the core purpose of taxation is revenue mobilization,
providing resources for National Budgets, and forming an important part of macroeconomic
management. They said economic theory has focused on the need to 'optimize' the system
through balancing efficiency and equity, understanding the impacts on production, and
consumption as well as distribution, redistribution, and welfare. They state that taxes and tax
reliefs have also been used as a tool for behavioural change, to influence investment decisions,
labour supply, consumption patterns, and positive and negative economic spill-over
(externalities), and ultimately, the promotion of economic growth and development. The tax
system and its administration also play an important role in state-building and governance, as a
principal form of ’social contract' between the state and citizens who can, as taxpayers, exert
accountability on the state as a consequence. The researchers wrote that domestic revenue forms
an important part of a developing country's public financing as it is more stable and predictable
than Overseas Development Assistance and necessary for a country to be self-sufficient. They
found that domestic revenue flows are, on average, already much larger than ODA, with aid
worth less than 10% of collected taxes in Africa as a whole.

However, in a quarter of African countries Overseas Development Assistance does exceed tax
collection, with these more likely to be non-resource-rich countries, This suggests countries
making most progress replacing aid with tax revenue tend to be those benefiting
disproportionately from rising prices of energy and commodities.

The author found tax revenue as a percentage of GDP varying greatly around a global average of
19%. This data also indicates countries with higher GDP tend to have higher tax to GDP ratios,
demonstrating that higher income is associated with more than proportionately higher tax
revenue. On average, high-income countries have tax revenue as a percentage of GDP of around
22%, compared to 18% in middle-income countries and 14% in low-income countries. In high-
income countries, the highest canto-GDP ratio is in Denmark at 47% and the lowest is in Kuwait
at 0.8%, reflecting low taxes from strong oil revenues.

Long-term average performance of tax revenue as a share of GDP in low-income countries has
been largely stagnant, although most have shown some improvement in more recent years.

31
On average, resource-rich countries have made the most progress, rising from 10% in the mid
90s to around 17% in 2008. Non resource rich countries made some progress, with average tax
revenues increasing from 10% to 15% over the same period .

Many low income countries have a tax-to-GDP ratio of less than 15% which could be due to low
tax potential, such as a limited taxable economic activity or low tax effort due to policy choice,
non-compliance or administrative constraints. Some low-income countries have relatively high
tax-to-GDP ratios due to resource tax revenues (e.g. Angola) or relatively efficient tax
administration (e.g. Kenya, Brazil) whereas some middle-income countries have lower tax-to-
GDP ratios (e.g. Malaysia) which reflect a more tax-friendly policy choice.

While overall tax revenues have remained broadly constant, the global trend shows trade taxes
have been declining as a proportion of total revenues(IMF 2011), with the share of revenue
shifting away from border trade taxes; towards domestically levied sales taxes on goods and
services.

Low-income countries tend to have a higher dependence on trade taxes, and a smaller proportion
of from income and consumption taxes, when compared to high income countries.

32
 CHAPTER 17
TRADE LIBERALIZATION HAS LED TO A DECLINE IN
TRADE TAXES AS A SHARE OF TOTAL REVENUES AND
GDP.

Resource-rich countries tend to collect more revenue as a share of GDP, but this is more
volatile. Sub-Saharan African countries that are resource rich have performed better tax
collecting than non-resource-rich countries, but revenues are more volatile from year to year. By
strengthening revenue management, there are huge opportunities for investment for development
and growth. Developing countries have informal sector representing an average of around 40%
perhaps up to 60% in some. Informal sectors feature many small informal traders who may not
be efficient in bringing into the tax net, since the cost of collection is high and revenue potential
limited (although there are broader governance benefits). There is also an issue of non-compliant
companies who are 'hard to tax', evading taxes and should be brought into the tax net.

In many low income countries, the majority of revenue is collected from a narrow tax base,
sometimes because of a limited range of taxable economic activities. There it therefore
dependence on few taxpayers, often multinationals, that can exacerbate the revenue challenge by
minimizing their tax liability, in some cases abusing a lack (if capacity in revenue authorities,
sometimes through transfer pricing abuse. Developing and developed countries face huge
challenges in taxing multinationals and international citizens. Estimates of tax revenue losses
from evasion and avoidance in developing countries are limited by a lack of data and
Methodological shortcomings, but some estimates are significant in low income countries.
compliance costs are high, they are lengthy processes, frequent tax payments, bribes and
corruption.

33
 CHAPTER 18
THE ADVANTAGES OF TAXTATION IN OFFSHORE
BANKING

Different currencies and even multi-currencies which is of advantage to expats with financial
commitments in more than one nation or currency for example.

If the nation in which you live has a less than favorable economic climate, by keeping your
wealth in an offshore bank account you can avoid the risks in your new nation such as high
inflation, currency devaluation or even a coup or war.

For those expats living in a nation where you only pay tax on the money you remit into that
country, there is an obvious tax benefit to keeping your money in an offshore bank account.

Offshore or international accounts are usually designed to offer customers maximum flexibility
in terms of account usage. Expats can benefit from this no matter where they are in the world as
it can mean they can access their funds from ATMS or online or over the phone at any time of
the day or night, no matter what the time zone.

Any interest earned is usually paid free from the deduction of taxation. For those Who don’t pay
tax on foreign sourced income this means they can enjoy greater teturns immediately, without
having to apply for a rebate.

You can potentially enjoy greater account privacy by going offshore. Some Jurisdictions e.g
Switzerland ,place great emphasis on maintaining client confidentiality at all times. For anyone
wishing to protect their assets from unfair or Speculative litigious behaviour for example. an
offshore bank account can be an added deterrent.

An offshore bank account can be a tool in the armory of those seeking to protect their estate from
inheritance taxes in the future. Accounts tied to trusts or companies can sometimes be beneficial
for the legitimate avoidance of estate taxes upon death.

34
Some offshore banks charge less and some pay more interest than onshore banks. This is
becoming less and less the case nowadays, but it’s worth looking closely at what’s available
when seeking to establish a new offshore bank account.

Because many of the high street banks have offshore arms, you can potentially remain with your
current banking provider when you expatriate and simply swap to having an international or
offshore account.

Less government intervention in offshore financial centers can mean that offshore banks are able
to offer more interesting investment services and solutions to their clients.

You may benefit from having a relationship manager or private bank account Manager if you
choose a premier or private offshore bank account. Such a service is “f benefit to those who
desire a more hands on approach to their account’s management from their bank.

THE DISADVANTAGES OF OFFSHORE BANKING

Historically banking offshore is arguably more risky than banking onshore. This is Demonstrated
when examining the fallout from the Kaupthing Singer and Friedlander pollapse on the Isle of
Man. Those onshore in the UK who were affected locally by are Nationalisation of the bank’s
parent company in Iceland received full compensation. Those who had deposits remotely in
offshore accounts in the Isle of Man were lucky if they were repaid the £50,000 guaranteed by
the depositor protection scheme.

The term ‘offshore’ has become synonymous with illegal and immoral money laundering and tax
evasion activity. Therefore conceivably anyone with an offshore bank account could be tarred,
by some, with the same brush even though their offshore banking activity is wholly legitimate.

35
You have to choose your offshore jurisdiction carefully. Whilst you may well be aware of how
the banking industry operates in your own home nation and how it is regulated, the rules and
regulations abroad differ massively. Also, some offshore havens are less stable than others.

It’s also important to look at the terms and conditions of an offshore bank account. Will you be
charged higher fees if you fail to maintain a minimum balance, what are the fees and charges for
the account and the services you may wish to utilize?

It can be more difficult to resolve any issues that may arise with your account if you hold it
offshore. This is because you cannot physically visit your branch and speak to someone in
person.

36
 CHAPTER 19
CURRENCY TRANSACTION TAX

A currency transaction tax is a tax placed on the use of currency for various types of transactions.
The tax is associated with the financial sector and is a type of financial transaction tax, as
opposed to a consumption tax paid by consumers, though the tax may be passed on by the
financial institution to the customer.

TYPES OF CURRENCY TRANSACTION TAXES

Currency transaction taxes have been proposed as taxes on domestic currency usage as part of
the automated payment transaction (APT) tax and on international currency transactions, the
Tobin tax and the Spahn tax.

APT tax

The Automated Payment Transaction (APT) tax was first proposed in Buenos Aires at the
International Institute of Public Finance Conference by Edgar L. Feige in 1989 and an extended
version of the proposal appeared in Economic Policy in 2000.

[l] The APT tax proposal is a generalization of the Keynes tax

[2] And the Tobin tax.

[3] The APT tax consists of a small flat tax levied on all transactions. The tax is automatically
assessed and collected when transactions are settled through the electronic technology of the
banking or payments system. In order to assure that all cash transactions are also taxed, the APT
system proposes to exact a tax on currency its it enters and leaves the banking system.

37
Tobin tax

A Tobin tax is a tax on all spot conversions of one currency into another. Named after the
economist James Tobin, the tax is intended to put a penalty on short-tern financial round-trio
excursions into another currency. Tobin suggested his currency Transaction tax in 1972 in his
Janeway Lectures at Princeton, shortly after the Bretton Wood system effectively ended.

Spain tax

In 1995, Paul Bernd Spahn suggested an alternative involving , a two-tier rate sanctum consisting
of a low-rate financial transactions tax, plus an exchange surcharge at prohibitive rates as a
piggyback. The latter would be dormant in times of normal financial activities, and be activated
only in the case of speculative attacks. The mechanism allowing the identification of abnormal
trading in world financial markets would make reference to a "crawling peg" with an appropriate
exchange rate band. The exchange rate would move freely within this band without transactions
being taxed. Only transactions effected at exchange rates outside the permissible range would
become subject to tax. This would automatically induce stabilizing behavior on the part of
market participants.

Special drawing rights

On September 19, 2001, retired speculator George Soros put forward a proposal, Special
Drawing Rights or SDRs that the rich countries would pledge for the purpose of providing
international assistance, without necessarily dismissing the Tobin tax idea.

38
 CHAPTER 20
FINANCIAL TRANSACTION TAX

A financial transaction tax is a levy placed on a specific type of mommy mm for a particular
purpose. The concept has been most commonly associated with the financial sector. It is not
usually considered to include consumption taxes paid by consumers. A transaction tax is not a
levy on financial institutions rather it is charged only on the specific transactions that are
designated as taxable. So if an institution never carries out the taxable transaction, then it will
never be subject to the transaction tax. Further more, if an institution carries out only one such
transaction. Then it will only be taxed for that one transaction. As such, this tax is neither a
Financial Activities Tax (FAT), nor a Financial Stability Contribution (FSC) or Bank tax. This
clarification is important in discussions about using a financial transaction tax as a tool to
selectively discourage excessive speculation without discouraging any other activity (as John
Maynard Keynes originally envisioned it in 1936).

There are several types of financial transaction taxes. Each has its own purpose. Some have been
implemented, while some are only proposals. Concepts are found in Various organizations and
regions around the world. Some are domestic and meant to be used within one nation whereas
some are multinational. In 20 there were 40 countries that made use of F'IT, together raising $38
billion (€29bn).

TYPES OF FINANCIAL TRANSACTION TAXES

Transaction taxes can be raised on the sale of specific financial assets, such as stock Bonds or
futures they can be applied to currency exchange transactions or they can be general taxes levied
against a mix of different transactions

Securities transaction tax

John Maynard Keynes was among the first proponents of a securities transaction tax. In 1936 he
proposed that a small tax should be levied on dealings on Wall Street, in the United States, where
he argued that excessive speculation by uninformed financial traders increased volatility. For
Keynes, the key issue was the Proportion of ‘speculators' in the market, and his concern that, if

39
left unchecked, these types of players would become too dominant. Keynes writes: "The
introduction of a substantial Government transfer tax on all transactions might prove the most
serviceable reform available, with a View to mitigating the predominance of speculation over
enterprise in the United States.

Currency transaction tax

A currency transaction tax is a tax placed on a specific type of currency transaction for a specific
purpose. This term has been most commonly associated with the financial sector, as opposed to
consumption taxes paid by consumers. The most frequently discussed versions of a currency
transaction tax are the Tobin tax and Spahn tax.

Tobin tax

In 1972 the economist James Tobin proposed a tax on all spot conversions of one currency into
another. The so-called Tobin tax is intended to put a penalty on short term financial round-trip
excursions into another currency. Tobin suggested his currency transaction tax in 1972 in his
Janeway Lectures at Princeton, shortly after the Bretton Wood system effectively ended. In 2001,
James Tobin looked back at the 1994 Mexican peso crisis, the 1997 Asian Financial Crisis, and
the 1998 Russian financial crisis, and said My proposed tax idea on foreign exchange
transactions... dissuades speculators as many investors invest their money in foreign exchange on
a very short-term basis. If this money is suddenly withdrawn, countries

Spahn tax

Paul Bernd Spahn Opposed the original form of a Tobin Tax in a Working Paper concluding the
original Tobin tax is not viable. First, it is virtually impossible to distinguish between normal
liquidity trading and speculative noise trading. If the tax is generally applied at high rates, it will
severely impair financial operations and create international liquidity problems, especially if
derivatives are taxed as well. However, on 16 June 1995 Spahn suggested that "Most of the
difficulties of the Tobin tax could be resolved, possibly with a two-tier rate structure consisting

40
of a low-rate financial transactions tax and an exchange surcharge at prohibitive rates. This new
form of tax, the Spahn tax, was later approved by the Belgian Federal Parliament in 2004.

Special Drawing Rights

On 19 September 2001, retired speculator George Soros put forward a proposal, issuing special
drawing rights (SDR) that the rich countries would pledge for the purpose of providing
international assistance and the alleviation of poverty and other approved objectives. According
to Soros this could make a substantial amount of money available almost immediately. In 1997,
IMF member governments agreed to a one-time special allocation of SDRs, totaling
approximately $27.5 billion. This is slightly less than 0.190 of the global GDP. Members having
71% of the total vote heeded for implementation have already ratified the decision

Bank transaction tax

Between 1982 and 2002 Australia charged a bank account debits tax on customer withdrawals
from bank accounts with a cheque facility. Some Latin American countries also experimented
with taxes levied on bank transactions. Argentina introduced a bank transaction tax in 1984
before it was abolished in 1992. Brazil implemented its temporary "CPMF" in 1993, which
lasted until 2007. The broad based tax levied on all debit (and/or credit) entries on bank accounts
proved to be evasion-proof, more efficient and less costly than orthodox tax models.

Automated payment transaction tax

In 1989, Edgar L. Feige proposed a synthesis and extension of the ideas of Keynes and Tobin by
proposing a flat rate tax on all transaction. The total volume of all transactions undertaken in an
economy represents the broadest possible tax base and therefore requires the lowest flat tax rate
to raise any requisite amount of revenue. Since financial transactions in stocks, bonds,
international currency transactions and derivatives comprise most of the automated payment
transaction (APT) tax base, it is In essence the broadest of financial transaction taxes.

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 CHAPTER 22
PROPOSED FINANCIAL TRANSACTION TAXES

Although every Financial Transaction Tax (FTT) proposal has its own specific intended Purpose,
there are some general intended purposes which are common to most of them. Below are some
of those general commonalities. The intended purpose may or may not be achieved. In 1936,
when Keynes first proposed a financial transaction tax, he wrote, "Speculators may do ’no harm
as bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes
the bubble on a whirlpool of speculation." Rescuing enterprise from becoming "the bubble on a
whirlpool of Speculation" was also an intended purpose of the 1972 Tobin tax and is a common
theme in several other types of financial transaction taxes. For the specific type of volatility in
specific areas, see each specific type of financial transaction taxes below. An exception to the
purpose of "curbing of volatility" is likely the "bank transaction tax". Another common theme is
the proposed intention to create a system of more fair and equitable tax collection. The
Automated Payment Transaction tax (APT tax) taxes the broadest possible tax base, namely all
transactions including all real and financial asset transactions. Instead of introducing
progressivity through the tax rate structure, the flat rate APT tax introduces progressiveness
through the tax base since the highest income and wealth groups undertake a disproportionate
share of financial transactions. In the context of the financial crisis of 2007-2008, many
economists, governments, and organizations around the world re-examined, or were asked to
reexamine, the concept of a financial transaction tax, or its various forms. In response to a
request from the G20 nations, the International Monetary Fund (IMF) delivered a report in 2010
titled "A Fair and Substantial Contribution by the Financial Sector" which made reference to a
financial transaction tax as one of several options.

According to several leading figures, the "fairness" aspect of a financial transaction tax has
eclipsed, and/or replaced, "prevention of volatility" as the most important purpose for the tax.
Fraser Reilly-King of Halifax Initiative is one such economist?” He proposes that an FTT would
not have addressed the root causes of the United States housing bubble which, in part, triggered
the financial crisis of 2007-2008. Nevertheless, he sees an FTT as important for bringing a more
equitable balance to the taxation of all parts of the economy.

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Less susceptible to tax evasion than alternatives

According to some economists, a financial transaction tax is less susceptible to tax avoidance
and tax evasion than other types of taxes proposed for the financial sector. The Automated
Payment Transaction tax (APT tax) employs let century technology for automatically assessing
and collecting taxes when transactions are settled through the electronic technology of the
banking payments system. Joseph Stieglitz, former Senior Vice President and Chief Economist
of the World Bank affirmed the "technical feasibility" of the tax. Although Tobin said his tax
idea was unfeasible in practice, Stieglitz noted that modern technology meant that was no longer
the case and said that the tax is "much more feasible today" than a few decades ago, when Tobin
disagreed. Fraser Reilly-King of Halifax Initiative also points out that the key issue and
advantage of an FTT is its relatively superior functional ability to Prevent tax evasion in the
financial sector.

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 CONCLUSION

Economic are rapidly becoming more open, not only to trade in goods and services but also to
capital flow and even to labor migration this paper consider the effect of taxation on international
business activities, and the implication of open border for the taxation of capital income. There is
considerable avoidance that international taxation influences the volume and location of foreign
direct investment and its responsible for avid range of tax avoidance. The observed
responsiveness of international economic activities to its taxation caries direct implication for the
formation of domestic tax policy. Indeed given the extent to which international consideration
influence domestic tax choices, it is not cleared whether country is are any longer able to pursue
purely domestic tax policy

Any analysis of capital taxation in open economy that seeks to be consistence with observed
behavior and actual tax policy must consider the implication of tax avoidance, and should
recognize the potential important of investment driven by firm specific intangible asset. even this
added complications do not explain certain expect of individual behavior, such as “home bias” in
financial portfolios, and are insufficient to rationalize easily the current tax treatment of capital
income. since international consideration worth after thought in the design of most country tax
system it may be that policy around the world have catch up with events. There is a bright future
research on international taxation, not only because there are many un answer questions and a
world wide laboratory to use in answering them , but also because the formulation of domestic as
well as international tax policy turn on the answer

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 REFRENCE

 www.amfi.com
 www.sbimutualfund.com
 www. taxation in international bankin.org
 www.nse.com
 www.bse.com
 www.moneycontrol.com
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 Indiainfoline.com
 Myiris.com
 Moneycontrol.com
 AMFI (amfiindia.com)
 Economictimes.com
 Equitymaster.com
 Valueresearchonline.com
 www.taxmann
 International.lloydsbanks.
 www.idfd.org
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 www.nber.com

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