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Taxation of Financial Intermediation

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

Practical experience
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

Particular taxes
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.


  • Patrick Honohan

Policy Research Working Papers

For more policy research working papers from the World Bank's institutional archives, search here using author’s last name, title or working paper number (“wpsxxxx”).

WPS5444The impact of the financial crisis on new firm registrationKlapper, Leora; Love, Inessa2010/10
WPS5230Financial transactions tax : panacea, threat, or damp squib ?Honohan, Patrick; Yoder, Sean2010/03


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