The United Kingdom and Proposed European Union Financial Transaction Essay

The United Kingdom and Proposed European Union Financial Transaction Tax - Essay Example This EU financial transaction tax is different from a bank levy. Regulators believe that the proposed policy has the potential to raise nearly 57 billion Euros per year. This proposal has been the topic of a hot debate across the European Union since its announcement in 2010 and it still remains controversial among the member states of the EU. This paper will critically appraise the statement that â€Å"The United Kingdom should drop its opposition to the proposed European Union Financial Transaction Tax. The benefits accrued from the introduction of such a tax far outweigh the drawbacks†. EU financial transaction tax The provision for creating a new financial transaction tax was proposed by the European Commission President Jose Barroso on 28th September 2011 with intent â€Å"to make the financial sector pay its fair share†2. He pointed out that the under-taxed financial segment generated 4.6 trillion Euros during the crisis. Ultimately, through this policy, the Europ ean Commission aims to raise direct revenues for the European Union. Ten of the EU member states already impose some forms of a financial transaction tax; and the proposal aims to harmonise different existing financial transaction tax rates. The proposed policy will be applicable if any party to the transaction is located in the EU. According to an initial study, the proposal may cover nearly 85% of the financial transactions between institutions like banks and insurance companies3. However, this proposal gives exception to transactions like house mortgages, loans to small scale enterprises, fund raising by enterprises, and spot currency exchange. This proposal requires institutions to pay proper tax rates to their country of residence irrespective of the location where actual trade has been taken place. In other words, no matter whether the transaction is taken place inside or outside the EU if any of the party to the transaction is a resident of EU. An official study conducted by the European Union reflects that a 0.01% tax would generate revenues between â‚ ¬16.4bn and â‚ ¬43.4bn per year and it respectively represents 0.13% to 0.35% of GDP. If the tax rate is raised to 0.1%, the revenues would be between â‚ ¬73.3bn and â‚ ¬433,9bn4. The European Commission claims that major portion of those revenues would directly go to the member states. With this policy, the Great Britain would earn approximately â‚ ¬10bn in additional taxes. The proposal allows the EU member states to increase their revenues by charging financial transaction taxes at a higher rate. Nations such as Germany, France, Spain, Finland, Belgium, and Australia support the EU FTT whereas countries like United Kingdom, Sweden, Bulgaria, and Czech Republic strongly oppose the proposal. Benefits of EU FTT The proposed financial transaction tax has a range of potential advantages. According to the European Parliament President, proposal would help EU cities and regions improve their r evenues5. Economists point out that EU regions and cities cannot survive with the current levels of revenues. In addition, existing taxation models are assistable for corporate giants to escape from paying national taxes. In this situation, the proposed taxation policy would be beneficial for cities and other regions to find a new source of revenue and thereby improve their operational efficiency. Unilateral cuts in public spending would adversely affect the economic activities of the EU. Therefore, improving