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EFAMA Peter de Proft

EFAMA highlights significant cost of proposed financial transaction tax for long-term savings


Many comments have been made recently in the press in support of the proposed financial transaction tax on the basis that it would result in the financial sector making a contribution to the economy and to society as a whole. EFAMA believes, however, that such claims are misleading on the basis that the economic cost of the tax would, in practice, be borne by end consumers of the financial services, including individual savers and those participating in pension plans. 

The impact of the proposed financial transaction tax on the funds sector of the long term savings market would be significant, not only because the proposed headline rates are relatively high, but also because the proposal, as currently drafted, would give rise to multiple taxation.  In the case of investment funds, for example, the charge to financial transaction tax would apply at the level of both funds (on transactions in their portfolios) and their investors (on transactions in fund shares/units).  Moreover, the use of financial intermediaries to distribute fund shares/units means that the purchase of shares/units by a single investor may give rise to multiple transactions down the distribution chain, all of which would be subject to financial transaction tax.
Peter de Proft, Director General of EFAMA, says: “We are particularly concerned that end consumers and their advocates have not appreciated the very significant cost impact which the proposed financial transaction tax would have on their long term savings.  The bottom line is that it would mean citizens having to save a larger part of their earnings, retire at a later age, or face a significantly reduced pension in retirement.”
EFAMA is also concerned that there is no guarantee that the proposed financial transaction tax would result in significant net revenues, in spite of the fact that it would give rise to a significant economic cost for consumers.  This is partly because the fundamental impact of the proposed financial transaction tax would be to dampen end-user appetite for transactions and encourage relocation of operations outside the EU (or eurozone, if a solely eurozone-wide approach to financial transaction taxes is adopted). This would reduce not only financial transaction tax revenue but also direct tax revenue. There would also be an increased cost to society which would arise as a result of reducing the amount of long-term savings. 


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