Taxation Of Financial Intermediation: Theory And Practice For Emerging Economies (directions In Development)

Taxing the financial sector, direction and indirectly, has long been relatively easy even for governments with limited taxing capacity. But growing awareness of the strategic importance of the financial sector in catalyzing economic growth has led governments to reconsider the financial sector's potential as a budgetary cash-cow. Indeed, the pendulum may have swung to the other extreme, with special interests sometimes arguing for exaggerated fiscal concessions in the name of improved financial sector performance.This book examines the possibilities and pitfalls of successful financial sector tax reform, whether based on simplifications such as VAT or transactions taxes, or on subtle attempts to use taxes as corrective instruments. Highlighted is the need to make the financial tax system as arbitrage-proof and inflation-proof as possible.Contributors to this volume — all respected academics or practitioners — address distinct areas of taxation. Theoretical chapters model the impact of taxes on intermediaries, the design of optimal tax schemes, the role of imperfect information, and links between taxation and saving. Current practice in the industrial world and case studies of distorted national systems provide an empirical underpinning. And discussion of practical issues considers inflation, the income tax treatment of intermediary loan-loss reserves, deposit insurance, the VAT, and financial transactions taxes.This book will prove useful to finance and policy professionals, development specialists, scholars and students of financial sector policy. Contents......Page 6 Cover......Page 1 Tilte......Page 4 Foreword xi......Page 12 Preface xiii......Page 14 Contributors xv......Page 16 1. Avoiding the Pitfalls in Taxing Financial Intermediation 1......Page 18 PART I: THEORETICAL AND SYSTEM-WIDE ISSUES......Page 46 2. Theoretical Perspectives on the Taxation of Capital Income and Financial Services 31......Page 48 3. Taxation of Banks: Modeling the Impact 81......Page 98 4. Tax Incentives for Household Saving and Borrowing 127......Page 144 5. Corrective Taxes and Quasi-Taxes for Financial Institutions and Their Interaction with Deposit Insurance 169......Page 186 PART II: PRACTICAL EXPERIENCE......Page 212 6. Taxation of Financial Intermediation in Industrial Countries 197......Page 214 7. Seigniorage, Reserve Requirements, and Bank Spreads in Brazil 241......Page 258 8. Taxation of Financial Intermediaries as a Source of Budget Revenue: Russia in the 1990s 269......Page 286 PART III: PARTICULAR TAXES......Page 306 9. Corporate Income Tax Treatment of Loan-Loss Reserves 291......Page 308 10. Bank Debit Taxes: Yield Versus Disintermediation 313......Page 330 11. Securities Transaction Taxes and Financial Markets 325......Page 342 12. Consumption Taxes: The Role of the Value-Added Tax 345......Page 362 13. The Accidental Tax: Inflation and the Financial Sector 381......Page 398 Index 421......Page 438 TABLES......Page 8 FIGURES......Page 10 Taxing the financial sector, directly and indirectly, in various ways has long been relatively easy even for governments with limited taxing capacity. This text examines the possibilities and pitfalls to successful financial sector tax reform from theoretical, empirical and practical perspectives. Annotation This volume examines the possibilities and pitfalls for successful financial sector tax reform from theoretical, empirical, and practical perspectives 'A co-publication of the World Bank and Oxford University Press.'