Tobin tax vs stamp duty: Both are worse, says BDO's Crean

27 January 2012 | By Gary Jackson

According to Bloomberg, German chancellor Angela Merkel is preparing plans for a stamp duty on shares, accompanied by rules that limit “abusive excesses” in automated trading, as an alternative to the financial transaction tax.

The move is seen as an attempt to win support from the UK, which has been opposed to the levying of a Europe-wide financial transaction tax after arguing that London would be hit disproportionately hard.

Paul Crean, tax director at BDO, says the stamp duty plan “might appear a step in the right direction” at first glance. However, he notes that no real detail has been offered on the proposal.

One area of concern is whether the tax will be able to meet its stated aim of creating an ongoing revenue stream. (article continues below)

“If the tax were now to be levied on the basis of the exchange where a security was traded, transactions could presumably be moved outside the EU,” Crean says. “As such, the EU is unlikely to achieve the revenue target it seeks.”

In addition, the commentator says implementing the tax will be complex while its administration cost could be high if has to be applied if just one party of a transaction is domiciled in the EU. This is another criticism of the financial transaction tax.

Crean also warns that, like the financial transaction tax, there is a risk the cost of the duty will be passed onto the consumer and create a disincentive for people attempting to save.

“In the end, in response to which tax is better, [prime minister David Cameron] may be wise to remember the gloomy Russian response: ’Both are worse’,” Crean concludes.

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