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Balancing the Regulation and Taxation of Banking

Sajid M. Chaudhry, Aston University and Andrew W. Mullineux,The Business School, University of Birmingham, UK and Natasha Agarwal, Indian Institute of Foreign Trade, New Delhi, India
This concise book gives a unique overview of bank taxation as an alternative or a compliment to prudential regulation or non-revenue taxation. Existing bank taxation is reviewed with a view to eliminating distortions in the tax system, which have incentivized banks to engage in risky activities in the past. The authors analyse the taxation of financial instruments trading, as well as the taxation of banking products and services to gauge whether this could finance resolution mechanisms and also help to ensure the stability of banks.
Extent: 168 pp
Hardback Price: $99.95 Web: $89.95
Publication Date: 2015
ISBN: 978 1 78536 026 8
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  • Economics and Finance
  • Financial Economics and Regulation
  • International Economics
  • Money and Banking
This concise book gives a unique overview of bank taxation as an alternative or a compliment to prudential regulation or non-revenue taxation. Existing bank taxation is reviewed with a view to eliminating distortions in the tax system, which have incentivized banks to engage in risky activities in the past. The authors analyse the taxation of financial instruments trading, as well as the taxation of banking products and services to gauge whether this could finance resolution mechanisms and also help to ensure the stability of banks.

In this respect, the authors put forward several arguments. Firstly, they contend that a financial transaction tax is economically inefficient, potentially costly for the economy, but if set at an appropriately low rate may be used to assure banks make a ‘true and fair contribution’ to their implicit insurance by taxpayers. Secondly, they show that a bank levy used to finance deposit guarantee and bank resolution mechanisms is potentially useful for financial stability, but that it poses the threat of double taxation, together with the proposed Basel III liquidity ratios. Thirdly, the authors argue in favour of the elimination of exemption from value added tax (VAT) for financial services in order to provide banks with a level playing field, whilst retaining exemption for basic payment services that are infrastructural. This is expected to improve efficiency by reducing the wasteful use of financial services.

This book is an invaluable resource to students, academics and researchers in the fields of banking regulation and taxation. Policymakers and those with a wider interest in the issues will find it both topical and enlightening.
‘Given the critical role played by banks and their behaviour during the global financial and sovereign debt crises, this excellent book on Balancing the Regulation and Taxation of Banking by Sajid M. Chaudhry, Andrew W. Mullineux and Natasha Agarwal could not be more timely. It provides an excellent in-depth analysis of how banks are taxed and regulated in various countries – including financial transaction taxes, VAT and other fiscal treatments. It also provides thought provoking recommendations on how tax and fairness of treatment of banks should be balanced.’
– Philip Molyneux, Bangor University, UK
Contents: 1. Introduction 2. Regulation and Taxation 3. Some Lessons from the Global or Great, Financial Crisis 4. Fiscal Costs of the Global Financial Crisis 5. An Overview of Existing Taxation 6. Taxation of Financial Instruments 7. Conclusion and Policy Recommendations References Index