The Taxation of Banks ? ? ? ?

1
The Taxation of Banks ? ? ? ?

• Klaus Gerhaeusser
• Director General, East Asia Department
• Asian Development Bank
• 26 October 2009
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• 2009?10?26?

2
Taxation and the Banking Sector Key
Aspects??????? ??

• Special features of financial sector for taxation
• Promotion of neutrality
• Promotion of access to financial services
• Role of banks for taxation

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3
Special Features of the Financial Sector?????????

• Difficult to determine price and output, and tax
• Difficult to determine location and time of tax
  base
• Special knowledge requirements of the sector

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4
Neutrality Taxation and Sector Development ??
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• Banking vs non-banking financial institutions
• Foreign vs domestic banks
• Financial sector conglomerates
• Microfinance institutions

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5
Neutrality Taxation and Operations?? ?????

• Tax exemptions savings motive
• Treatment of complex financial products
• Transaction taxes

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6
Neutrality Regulation and Taxation???????

• Primacy of regulation and coordination
• Treatment of provisioning for loan losses need
  for dynamic provisioning
• Treatment of deposit insurance focus on risk
  differentiated approach

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7
Taxation and Access to Financial
Services??????????

• Financial inclusion an important development
  goal
• Role of small banks and self-help groups to
  enhance access to SMEs
• Incentives for microfinance to help alleviate
  poverty

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8
Role for Banks in Tax Administration???????????

• Need for disclosure
• Role of financial centers
• Incentives for sharing of information

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9
Key Issues????

• Given its pivotal position and peculiarities,
  what is the best way to manage taxation of
  financial sector would the Netherlands model be
  useful in all countries?
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• Should tax treatment (particularly with respect
  to provisioning) be differentiated based on the
  nature of financial institutions and the risk
  they pose to consumers, tax administration, and
  the system?
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Key Issues????

• How should depositors income from banking sector
  be treated under taxation? And what are
  cost-effective and equitable ways to provide
  incentives to promote savings?
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• Could dynamic provisioning for loan losses and
  differentiated approach to deposit insurance help
  reduce the pro-cyclical bias on prudential
  regulation?
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Key Issues????

• What role could taxation play to enhance access
  to financial sector services to the poor and SMEs
  in a cost-effective manner?
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• Asymmetry in the costs and benefits of disclosure
  of
• information Information provider bears the
  costs, and
• the benefits go to information receiver whose
  revenue
• increases. How to make both parties benefit
  from the
• exchange of information?
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  ????????????

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Thank you.
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