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Financial Transaction Taxes are levies imposed on particular kinds of monetary transactions meant for a specific purpose. The nature of these taxes is important to understand as their scope does not lie with financial institutions, rather their scope lies with particular types of financial transactions that have been designated as being taxable. Also, the tax can only be levied once on a single transaction and so any financial institution engaging in the transaction would have to pay the tax only once. Therefore, financial transaction taxes are distinct from financial activities taxes and bank taxes. It is important understand the distinction between these types of taxes as this will enable one to understand how and why financial transaction taxes are used as tools to for selective discouragement of certain financial activities like excessive speculation while not impacting other financial market activities.
While all financial transaction taxes are devised and implemented with a specific purpose in mind. There are certain features that permeate all FTT’s. They are:
Reducing Market Volatility: Excessive market speculation can often lead to volatile market situations and in certain cases usher in a marked decline or fall in market value or operations. Keynes, who first proposed FTT’s saw such financial taxes to be a measure using which intense market speculation may be curbed and enterprises be saved from the negative effects of such speculations. Naturally, the effect of excessive speculation would also affect the investors associated with an enterprise. So, by extension these taxes also protect the investors.
Fairer and More Equitable Tax Collection: The financial taxation law collection regime of nations is built around having a welfare oriented system where greater income leads to greater taxes. Financial transaction taxes and their many broader versions provide a taxation base by which regulation of taxation regimes can be done with more fairness and equity. The premise for this assertion is that the wealthy segments of society engage most often in financial transactions of large amounts.
More Difficult to Evade Tax than in Alternatives: FTT’s are considered to be harder to evade or avoid than other forms of taxes in the domain of finance. Automated taxation systems make FTT’s even more effective and in many cases more efficient than former taxation system.
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