This website reports on a research project completed by the Development Research Group of the World Bank and funded by the World Bank's Research Support Budget.
A good tax system for the financial sector should:
(a) be corrective of known distortions
(b) minimize the distortions it imposes
(c) not push tax collection from the sector beyond the point where marginal distorting costs exceed those elsewhere in the economy.
The project addressed these features focusing on domestic financial intermediation in middle-income emerging markets.
What makes financial sector taxation different?
- The large number of handles for taxation
- explicit and implicit
- often employed by governments with limited taxing capacity.
- Sector prone to market failure: taxation can play a corrective role.
- Measurement of income and value-added of financial intermediaries is complicated
- calculation of loan-loss and insurance reserves, and
- calculation of interest receipts and payments
One page summary of project findings.
The project has resulted in a book-length report containing the following papers:
1. Avoiding the Pitfalls in Taxing Financial Intermediation, Patrick Honohan
Theoretical and systemwide issues
2. Theoretical Perspectives on the Taxation of Capital Income and Financial Services, Robin Boadway and Michael Keen
3. Taxation of Banks: Modeling the Impact, Ramon Caminal
4. Tax Incentives for Household Saving and Borrowing, Tullio Jappelli and Luigi Pistaferri
5. Corrective Taxes and Quasi-Taxes for Financial Institutions and Their Interaction with Deposit Insurance, Philip L. Brock
6. Taxation of Financial Intermediation in Industrial Countries, Mattias Levin and Peer Ritter
7. Seigniorage, Reserve Requirements and Bank Spreads in Brazil, Eliana Cardoso
8. Taxation of Financial Intermediaries as a Source of Budget Revenue: Russia in the 1990s, Brigitte Granville
9. Corporate Income Tax Treatment of Loan-loss Reserves, Emil Sunley
10. Bank Debit Taxes: Yield vs. Disintermediation, Andrei A. Kirilenko and Victoria Summers
11. Securities Transaction Taxes and Financial Markets, Karl Habermeier and Andrei A. Kirilenko
12. Consumption Taxes: The Role of the Value-added Tax, Satya Poddar
13. The Accidental Tax: Inflation and the Financial Sector, Patrick Honohan
An earlier background paper on the issues.