Financial transaction tax

A financial transaction tax is a levy placed on a specific type of monetary transaction 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 per se; 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. Furthermore, 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", 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 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 2011 there were 40 countries that made use of FTT, together raising $38 billion (€29bn).

The year 1694 saw an early implementation of a financial transaction tax in the form of a stamp duty at the (founded 1801). The tax was payable by the buyer of shares for the official stamp on the legal document needed to formalize the purchase. As of 2011^[update], it is the oldest tax still in existence in Great Britain.

The United States instituted a transfer tax on all sales or transfers of stock in The Revenue Act of 1914 (Act of Oct. 22, 1914 (ch. 331, 38 Stat. 745)). Instead of a fixed tax amount per transaction, the tax was in the amount of 0.2% of the transaction value (20 basis points, bips). This was doubled to 0.4% (40 bips) in 1932, in the context of the Great Depression, then eliminated in 1966.

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