A Simple Guide to Transaction Taxes in Malaysia
A lot of countries in the world tax their financial transactions. These are varied in terms of tax shapes and sizes from the transfer of share ownership taxes and stamp duties on foreign exchange transactions and cash movement of balances within accounts.
Organisations of financial services build new systems and operating procedures to respond to new regimes that are introduced.
They are mainly imposed on currency trading, stocks, and financial instruments that economists use. There are transaction tax code rules to restrict how some specific kinds of corporate deals can have a structure to avoid taxes.
If you want to know more about transaction taxes, read more.
A very influential transaction tax is this one. When the USA suspended the convertibility of USD to gold, and when the Bretton Woods system collapsed in the 1970s, James Tobin proposed a tax on exchange transactions between all the countries’ currency. The proposal is called the “Tobin tax.”
This tax aims to discourage short-term speculation in the markets of foreign exchange and reduce the volatility of the exchange rate.
Tobin tax will be levied on all the currency exchange worldwide transactions.
Securities Transaction Tax (STT)
Another kind of transaction tax is the securities transaction taxes, which was proposed and has implemented a lot of equity markets. STT is imposed on bonds, stocks trading, options contracts, and futures contracts. When implementing this, international cooperation is not required. STT proponents say that aside from generating revenues, STT could lessen excess volatility. However, the opponents say that taxes may lessen market liquidity, market efficiency, and direct trading to different countries.
It Complements Financial Regulations
Financial transaction tax (FTT) complements the financial market regulation. With this tax, governments have more instrument at hand in influencing trading activity. FTT wants to reduce flash trades, regulatory arbitrage, excessive leverage, overactive management of the portfolio, and financial institutions speculative transactions. However, harmful transactions cannot be curbed, and the FFT generates tax revenues that contribute to covering financial crisis costs. Tax attempts are inevitable, and the tax impact should be closely monitored so that governments can quickly respond to tax loopholes and geographical relocation with taxes regarding their financial institution plans.
The Tax is Progressive
The tax is targeting active investors who are focused on the population’s wealthiest segments. The middle class could feel the tax’s indirect effects through investment in their retirement plans or investment. The mutual funds and indexed funds change their investment portfolio and would incur tax. The tax critics would say that it could increase taxes that middle-class investors have to pay for.
FTT Could Contribute to Preventing a Crisis
The FTT dampening effect can be expected to be in financial transactions that are only made for regulatory purposes. For instance, financial institutions with large balance sheets but have an insufficient capital basis could have an incentive to use sale and repurchase agreements for window dressing. A repo refers to is an asset sale that comes with a repurchase agreement. Therefore, it becomes the right vehicle for short-term balance and sheet items outsourcing. Since there is a repo, the balance looks smaller on a certain date than it is, and the ratio leverage appears higher.