tobin tax and its applicability in india(edited)

8/9/2019 Tobin Tax and Its Applicability in India(Edited)

1/19

TOBIN TAX ANDITS

APPLICABILITY ININDIA

PRESENTED BY:

PRERNA GUPTA


2/19

INTRODUCTION

The Tobin Tax, named after Nobel Prize-innin! "S e#onomi$t %ame$ Tobin, a$ &ro&o$ed in '()' for the *r$t time+

It$ main intention a$ to le it on #.rren# tran$a#tion$ todi$$.ade $hort term #.rren# $&e#.lation+

Thi$ tax a$ &ro&o$ed a$ a a of throin! $and in the heel$

of international *nan#e, and $o #ombat mar/et olatilit+ 0i$ idea a$ &rom&ted b the #olla&$e of the Bretton 1ood$

$$tem in '()', hi#h re&la#ed an arran!ement of *xedex#han!e rate$ .ltimatel ba$ed on the "S dollar2$ &e! to !oldith a &eriod of olatile 3oatin! ex#han!e rate$

In order to oer#ome thi$, he &ro&o$ed the idea that #.rren#tran$a#tion$ tax be im&o$ed in order to $lo don $&e#.latiemoement$ of #.rren# and !ie !oernment$ !reater abilit tomana!e their on dome$ti# monetar and *$#al &oli#+

Sin#e the )4$ thi$ &ro&o$al ha$ been #han!ed in $eeral a$ 5to hae a to tier tax, to be#ome &art of *nan#in! for

deelo&ment, to in#l.de taxe$ on $ale$ of international$e#.ritie$, and $eeral other ariation$+


3/19

CONTD...

At that &oint of time, the idea a$ not !reeted ith zeal,a$ the '()4$ ere a &eriod of o&timi$m and #on*den#e in3oatin! ex#han!e rate$+

The idea of Tobin Tax ha$ !ained im&ortan#e d.rin! the

#.rren# #ri$i$ time in the e#onom+ The re#ent t.rb.len#e in !lobal *nan#ial mar/et$ and The

A$ian #.rren# #ri$i$ ha$ reied intere$t in the Tobin taxto di$#o.ra!e $&e#.latie #.rren# tradin! and red.#eex#han!e rate olatilit+

Thi$ tax ill tar!et the forei!n ex#han!e tran$a#tion$hi#h are #om&leted ithin a da and a hi!h rate ill be#olle#ted on $.#h tran$a#tion$+

The amo.nt $o #olle#ted ill be .tili$ed toard$ 6lobalP.bli# 6ood$ 76P68$9+


4/19

MEANING

A Tobin tax i$ de*ned a$ a tax on all $&ot

#oner$ion$ of one #.rren# into another+ The

tax i$ intended to &.t a &enalt on $hort-term

*nan#ial ro.nd-tri& ex#.r$ion$ into another

#.rren#+

%ame$ Tobin2$ &.r&o$e in deelo&in! hi$ idea ofa #.rren# tran$a#tion tax a$ to *nd a a to

mana!e ex#han!e-rate olatilit+


5/19

ILLUSTRATION OF TOBIN

TAX

A $&e#.latoranti#i&ated a

ri$e in theDollar a!ain$t

:.&ee+

0e mi!ht enter a#ontra#t to $ell,$a, :$+ ;< La/h

for a ee/,re#eiin! =' La/h

7A$$.me =' > :$+;


6/19

WORKING OF TOBIN TAX

C.rren# $&e#.lator$trade oer = trillion

dollar$ ea#h da a#ro$$border$+ The mar/et i$

h.!e, and olatile+

a#h trade o.ld betaxed at 4+' to 4+<&er#ent of ol.me

Thi$ o.ld di$#o.ra!e$hort term #.rren#

trade$, abo.t (4 &er#ent$&e#.latie, b.t leaelon!-term &rod.#tieine$tment$ inta#t+

The #.rren# mar/et o.ldth.$ $hrin/ in ol.me,

hel&in! to re$tore nationale#onomi# a.tonom+ Nation$

a!ain #o.ld intereneee#tiel to &rote#t their

on #.rren# fromdeal.ation and *nan#ial

#ri$i$+

Billion$ in reen.e,e$timated at ='44 -

=44 billion &er ear,o.ld be !enerated+

:een.e #o.ld !o intoearmar/ed tr.$t f.nd$ to

f.nd .r!entinternational &rioritie$+


7/19

OBJECTIVE OF IMPOSING TOBIN

TAX

To red.#e ex#han!e-rate olatilit b red.#in! #.rren#$&e#.lation+

To rai$e reen.e for international or!anization$+ To ma/e national e#onomi# &oli#ie$ le$$ .lnerable to

external $ho#/$+ The $tabilization of ex#han!e rate$+ The ex&loitation of ne reen.e $o.r#e$+ The redi$trib.tion of re$o.r#e$, in &arti#.lar beteen

*nan#ial and &rod.#in! $e#tor$, and beteen nation$ 7in

&arti#.lar beteen the North and the So.th9+ A$&e#t$ dire#ted toard tran$formin! the orld e#onomi#

order, in &arti#.lar ith the aim of #ontrollin! the &ro#e$$of !lobalization+


8/19

EFFECTS OF TOBIN TAX

Einan#in! Deelo&ment+

:ed.#e the olatilit of ex#han!e rate$+

:ed.#e the &oer that Einan#ial mar/et$ hae oer

national !oernment$ to determine Ei$#al and Fonetar

&oli#ie$+

:ai$e :een.e+


9/19

TOBIN TAX AND INDIA

The tal/ of a Tobin-t&e tax /ee&$ $.rfa#in! re!.larl in India a$&oli# ma/er$ are #on#erned abo.t another $.r!e in #a&italin3o$-#on$iderin! the #o.ntr2$ boomin! 6DP !roth hen there#oer of the orld e#onom remain$ brittle+

A##ordin! to :e$ere Ban/ of India Eormer 6oernor Fr D..ri

S.bbarao, GIndia ha$ no &lan$ to im&o$e the $o- #alled Tobin taxon forei!n #a&ital in3o$+ 0e added that the &o$ition ma bereieed in f.t.re+

Eormer Prime Fini$ter Fanmohan Sin!h al$o r.led o.t theim&o$ition of a tax on #a&ital 3o$, referred to a$ Tobin Tax,$ain! that &ortfolio and dire#t ine$tment into India ere

mana!eable+ It i$ al$o orth notin! that Indian *$#al &oli# al$o &roide$ for a

hi!her in#ome tax rate on $hort-term !ain$ 7hether or not onthe $to#/ ex#han!e9 hi#h i$ not there in mo$t of the #o.ntrie$+

In ie of thi$, India alread ha$ a *$#al enironment to &rote#t

a!ain$t $hort-term olatilit+ In addition, the im&lementation of$.#h a tax ma al$o im&a#t !en.ine hed!in! tran$a#tion$ hi#h


10/19

MERITS OF TOBIN TAX

A##ordin! to Tobin, the bene*t$ o.ld be re3e#ted in $tabilized

ex#han!e rate$ and a #on$olidation of the a.tonom of

monetar a.thoritie$+

A tax on *nan#ial tran$a#tion$ ill hel& the deelo&ed #o.ntrie$

re#o.& $ome of the re$o.r#e$ $&ent on bailin! o.t *nan#ial#on#ern$+

The tax #an $tabili$e the !lobal *nan#ial mar/et$ and al$o f.nd

$&e#i*ed deelo&ment &roHe#t$+ After the ea$t-A$ian ex&erien#e,

here forei!n in$tit.tional ine$tor$ &.lled o.t leadin! to a

#ri$i$, the need for $.#h a tax had been f.rther a##ent.ated+ It ill $tabili$e in#rea$in!l olatile #.rren# mar/et$+

It ill - .ite &ainle$$l b the $tandard$ of mo$t taxe$ - rai$e

ma$$ie reen.e .r!entl needed for a ran!e of orth #a.$e$+

Tobin Tax are not ee#tie oer the lon! r.n, b.t ma be .$ef.l

in the #ontext of a #ri$i$+


11/19

DEMERITS OF TOBIN TAX

If a #o.ntr ere to .nilaterall le $.#h a tax, it o.ld

#.rb #a&ital in3o$ and h.rt it$ !roth &ro$&e#t$+

An im&o$ition of $.#h a tax b $ome #o.ntrie$ ill re$.lt

in re-ro.tin! of #a&ital 3o$ into more lenient H.ri$di#tion$

or &otentiall into tax haen$ ma/in! *nan#ial

tran$a#tion$ een more o&a.e+

It i$ not een #ertain that a Tobin Tax o.ld in#rea$e

ex#han!e-rate $tabilit+ 1hen a #.rren# a$ .nder

atta#/ b $&e#.lator$, the #o$t of the tax o.ld almo$t

#ertainl alread hae been di$#o.nted, &o$$ibl re$.ltin!

in !reater, rather than loer, olatilit+


12/19

CONTD...

1hile the rate o.ld be lo eno.!h not to hae a$i!ni*#ant ee#t on lon!er term ine$tment here ield i$hi!her, it o.ld #.t into the ield$ of $&e#.lator$ moin!ma$$ie amo.nt$ of #.rren# aro.nd the !lobe a$ the$ee/ to &ro*t from min.te dierential$ in #.rren#3.#t.ation$+

It i$ diJ#.lt to de*ne the tax ba$e and taxabletran$a#tion$+

The mo$t im&ortant i$ an ee#tie Tobin Tax need$ to beim&o$ed !loballK otheri$e trader$ #an eade it b$hiftin! their tradin! to another #o.ntr+

The Tobin Tax ma al$o red.#e mar/et eJ#ien# andli.idit be#a.$e #.rren# trader$ ma/e mone on er$mall $&read$ een tax of a fe ba$i$ &oint$ o.lddra$ti#all red.#e ol.me$+


13/19

RELEVANCE OF TOBIN TAX

The &ro&onent$ of the tax ar!.e that ill-ee#t$ and ri$/$of olatilit are inherent to all *nan#ial mar/et$ andmea$.re$ $ho.ld be in &la#e to #.rb 3o$+

Chile, Colombia, Brazil, and Fala$ia hae im&o$ed it+

#onomi$t$ $a !loball #oordinated a#tion ill enhan#ethe ee#tiene$$ of the &oli#ie$ at the national leel+ In 44', %ame$ Tobin $aid the rate #o.ld be #lo$e to 4+


14/19

FUTURE PROSPECTS OF TOBIN

TAX

In &rin#i&le, a tax on #a&ital 3o$ i$ intended to #.rb thehi!h olatilit in #ro$$-border #a&ital 3o$+

The idea i$ bein! di$#.$$ed hotl a!ain a$ Brazil ha$introd.#ed a &er #ent tax on forei!n &ortfolio 3o$ 7EDIi$ not #oered9 to #.rb the $har& a&&re#iation of it$#.rren#+

x- Prime Fini$ter of " 6ordon Bron ha$ al$o mooted atax on *nan#ial tran$a#tion$ to #reate a &ool for &o$$iblef.t.re ban/ bailo.t$+

.ro&e ill hae a *nan#ial tran$a#tion$ tax b thebe!innin! of 4'? at the late$t, *nan#e mini$ter$ from the'' .ro&ean "nion #o.ntrie$ ho ba#/ the moede#ided +

A tax li/e Tobin tax i$ &rin#i&all a/in to the Se#.ritie$ Tran$a#tion Tax 7STT9 #.rrentl leied in India+ Indeed, inboth the #a$h and deriatie$ mar/et, t.rnoer !roth


15/19

ISSUES INVOLVED

There are to /e &oliti#al i$$.e$ inoled in &.ttin! $.#h

a tax in &la#eK

a+ it o.ld be ne#e$$ar to b.ild a!reement amon!$t the

maHor #o.ntrie$ to im&lement a .niform tax, and

b+ there o.ld hae to be a!reement on the #olle#tion and

di$trib.tion of the tax reen.e+


16/19

SUGGESTIONS

A tax to #.rb $&e#.lation in forei!n #.rren# ex#han!e i$ an

innoatie and fair &ro&o$al that ill #ontrib.te to re$torin!

demo#rati# #ontrol oer o.r national e#onomie$+

A reie of the exi$tin! taxe$ in $ome H.ri$di#tion$ o.ld &oint

to the fea$ibilit of $.#h taxe$ at the national leel+

International #oordination for le of $.#h taxe$ m.$t be

&.r$.ed i!oro.$l, b.t national leel initiatie$ for Tobin Tax a$

&art of mea$.re$ to a#hiee *nan#ial $tabilit b indiid.al

#o.ntrie$ al$o ha$ m.#h to #ommend for it$elf+

It i$ .ndeniable that !loball #oordinated a#tion ill enhan#e

the ee#tiene$$ of &oli#ie$ at national leel+


17/19

THE WAY AHEAD

The idea of !lobal taxation and re!.lation $ho.ld .r!entlbe &.r$.ed+

Deelo&in! an internationall #oordinated &oli# re$&on$eo.ld be an im&ortant $te& forard, &arti#.larl in term$of adan#e$ in inter!oernmental #o-o&eration, !lobal!oernan#e, !lobal and #or&orate #itizen$hi&+

A C.rren# Tran$a#tion Tax ha$ #on$iderable &otential b.trai$e$ .e$tion$, hi#h need$ f.rther a$$e$$ment+ TheareK

a9 1hat exa#t $tr.#t.re $ho.ld it ta/eb9 1ho $ho.ld be the im&lementin! bodie$

#9 0o the tax ae#t$ the mar/et eJ#ien#

d9 1hat are alternatie me#hani$m$ to $tabili$e mar/et$

e9 0o o.ld the thre$hold be #al#.lated

f9 1hat o.ld be the im&a#t$ on mar/et$ at national and


18/19

CONCLUSION

To #on#l.de, e #an $a that it #annot be the #a$e

that Tobin Tax b it$elf o.ld be ee#tie, b.t it

ha$ immen$e &otential hen the in$tr.ment i$

.$ed alon! ith #om&lementar &oli#ie$, in

&arti#.lar, #o.nter-##li#al and ma#ro-&r.dential

mea$.re$+

A reie of the exi$tin! taxe$ at the national leel

in $ome H.ri$di#tion$ o.ld &oint to the fea$ibilit

of $.#h taxe$ at the national leel+


19/19

THANK YOU

tobin tax and its applicability in india(edited)

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