IMF proposes taxes on banks to target excess profits

I / Washington April 21, 2010, 13:57 IST

The International Monetary Fund (IMF) has proposed two new taxes on the financial industry to target "excess" profits and compensation, a media report said today.

The levy, the IMF said, should raise an equivalent of at least 2 per cent of a country's economic output - around $300 billion in the US and should be set aside to underwrite the cost of seeing failed institutions through bankruptcy, The Washington Post said.

The IMF proposals will be reviewed by the Finance Ministers of G-20, whose representatives are in Washington for meetings this week, The Post reported.

The confidential paper was leaked to the BBC and posted on its website, which said that banks and other financial institutions face paying two taxes to fund future bail-outs.

The document outlines a possible "financial stability contribution" that would be based on the threat that a firm's collapse would pose to a economy.

"The IMF has given a green light to taxing banks, which is positive. We need to see hundreds of millions of dollars every year going to fight poverty and climate change," Oxfam spokesperson Elizabeth Stuart said in a statement.

"While clearly not their favored option, the IMF has said that there are no practical objections to the financial transactions tax and that it could be applied on top of another bank levy," Stuart said.

The levy comes at a time when the IMF is playing a central role in moderating the G-20's debate over how to change the global financial system.

In a series of reports issued in recent days, the fund has lectured countries over weak bank regulation and warned that spiraling government debt in the developed world could trigger the next crisis, the daily said.