Banks and other financial institutions face paying two new taxes to fund future bail-outs, the BBC has reported. The BBC report said that the global proposals by the International Monetary Fund (IMF) were â€œmore radicalâ€ than most had anticipated.
All institutions would pay a bank levy – initially at a flat-rate – and also face a further tax on profits and pay. The measures are designed to make banks pay for the costs of future financial and economic rescue packages. The proposals are likely to horrify banks, especially the proposed tax on pay
The IMF documents were made available to governments of the G20 group of nations on Tuesday afternoon and seen by the BBC soon afterwards. The plans will be discussed by finance ministers this weekend.
â€œThe proposals are likely to horrify banks, especially the proposed tax on pay,â€ our business editor said. They will also be politically explosive both domestically and internationally.â€
Insurers, hedge funds and other financial institutions must also pay the taxes, the IMF argues, despite them being less implicated in the recent crisis. If they were not included, activities currently carried out by banks would be reclassified as, for example, insurance or hedge-fund services to escape the levies.
While the general levy, or â€œfinancial stability contributionâ€, would initially be at a flat rate, this would eventually be refined so that riskier businesses paid more. British chancellor Alistair Darling said the IMFâ€™s proposals were â€œimportantâ€ and should be welcomed. â€œThe recognition that banks should make a contribution to the society in which they operate is right,â€ he said.
It was agreed at the G20 summit in London last year that financial institutions and not tax_payers should pay for future bank rescue packages. Since then several proposals have been put forward by various governments including the so_called â€œTobin Taxâ€ on financial transactions. Some nations, including Canada, oppose any new bank taxes.
However no country has yet introduced taxes to pay for future bailouts _ arguing that unless the rules were brought in on a coordinated basis, institutions would simply â€œcherry pickâ€ where they operated, moving to jurisdictions with less tough financial regulation.
The body which represents banks in the UK, the British Bankersâ€™ Association said it was concerned about any move which would place the UK industry â€œat a competitive disadvantage internationallyâ€.
â€œWe also need to see all the detail of what is proposed _ and how any new levy and tax would apply _ to determine the effect it would haveâ€, it said.
In the light of the UKâ€™s looming general election, the IMF proposals were likely to be used for some political point scoring, our business editor said. â€œLabour is bound to claim that the IMF is implicitly criticising the Toriesâ€™ plan to impose a new tax on banks irrespective of what other countries doÂ because the IMF paper says that â€˜international co_operation would be beneficialâ€™.
â€œI would also start to question my sanity if Gordon Brown doesnâ€™t claim credit for putting pressure on the IMF to launch its review of possible bank taxes.â€ But he added that the Conservatives would say that their bank tax proposals resembled the financial stability contribution. And the Liberal Democrats would claim that their proposed tax on banksâ€™ profits was similar to the second tranche of the IMF proposal.