European Union Financial Transaction Tax Essay Example | Topics and Well Written Essays - 2500 words

European Union Financial Transaction Tax - Essay Example The proposed transaction tax is different from a resolution levy or bank levy. Some governments have it in mind to impose bank levy in order to insure banks against future bailouts. However, this issue remains a matter of controversy amongst member states of European Union. The executive of the European Commission was to carry out a study to determine if it is appropriate to impose the tax on European Union alone. Tobin-style taxation method was imposed on EU’s sector of finance for purposes of generating direct revenue. The European Commission also suggested reduction of levies existing in the 27 state members. The new transaction tax was to ensure that the financial sector paid its fair share since it had been under-taxed for long (Collins 2011). The proposal effectively introduces a new minimum of rating taxes and harmonizes different taxes that exist in the EU’s financial transactions. This initiative will further aid in reducing competitive single market distortion , will discourage trading activities that are risky, and it will complement measures for regulations that are meant for avoiding crises in the future (Davidson 2002). The taxes will be levied on every transaction between institutions of finance as long as any of the involved parties in the transaction is within the EU location. The targeted institutions include; insurance companies, investment firms, pension funds, banks, hedge funds amongst others. House mortgages, insurance contracts contributions, bank loans to medium and small enterprises, spot transactions of currency exchange and issuance of shares and bonds on primary market will not be subjects to taxation (Mooslechner, Schuberth and Weber 2006). However, taxes will be imposed for secondary markets bond trading (Stigler 1971). The institution of finance is required to pay the rate of tax as per its residential country regardless of the actual trade location. The tax will cover all the transactions involving Europeans firms w ithout considering where the transactions took place. In this case, the brokers transacting on behalf of clients, are in a position to pass the tax unto the client. The European Union is composed of 27 state members amongst whom some are for the implementation of the transaction tax while others like the United Kingdom are opposing it. The government of the United Kingdom threatens to use its veto power to stop the proposal implementation unless it is introduced globally. The member states that are for the implementation suggest that the taxing should be implemented within the few member states euro zone and exclude the states that are reluctant. The general public opinion is that the financial transaction tax should be implemented be it global or within the European Union. People feel that it is a high time the sector of finance helped in repairing the damage resulting from economic crisis. The commission had launched consultations with the public in order to obtain feedback from t he stakeholders on the financial sector taxation initiative. The consultations are to aid in testing assumptions, collecting evidence relating to the definitions of problems, assessing impacts of set policy options and consulting on detailed aspects of the design and feasibility of policy options. Critics are stating that, Britain would disproportionately shoulder the negative consequences of the financial tra