Editor’s note: This article was first published in May 2011, and the banks’ lobbying, the sector’s estimate of about 1.5 billion euros a year, the Robin Hood tax debate and the shelved 2007 EU reform reflect that time.
This is just the news I needed to hear today. The article could almost be titled “Banks want to pay more taxes“, although that wouldn’t be entirely accurate. Here’s the explanation from the article’s author:
It’s unusual to hear anyone ask to pay more taxes, with the exception of a few American millionaires, such as Warren Buffett, who criticised the tax cuts for the rich pushed through by George W. Bush. Now, however, pressure is building for the Spanish tax authorities to apply VAT to financial services. And the surprising thing is that the push comes from the banks themselves, not from a political party or anti-capitalist movements.
To understand this, you need a simple explanation of how VAT works. If I’m a company, I pay VAT on the goods or services I buy, and then I charge VAT when I sell. Every quarter, in my VAT return, I do a simple calculation: from the total VAT I have charged, I subtract the VAT I have paid. The difference is what I owe the tax authorities, or what they refund me if the balance is in my favour.
But here’s the catch: financial services in Spain are exempt from VAT. So banks do have to pay it as part of the price of the things they buy (electricity for their branches, a marketing campaign, computers for their staff…), just like any other company, but they have no VAT to pass on to their customers, which means they can’t deduct anything from what they owe the tax authorities. We’re talking about roughly 1.5 billion euros a year, according to the financial sector’s own estimates.
In November 2007, the European Commission was preparing a reform of VAT on financial services, but the economic crisis forced it to be shelved. Now that there is talk of a “Robin Hood tax” or a new levy on the sector’s profits, the banks have revived their old demand to charge VAT. “If we have to be taxed, let it be VAT,” they argue. They have put this to the government “repeatedly and officially”, claiming that this extra cost hurts their competitiveness and drives up costs.
What would applying VAT to financial services mean for consumers?
First, what would be taxed is the financial margin. In the case of a loan, for example, VAT would not apply to the total amount lent, only to the lender’s profit margin. Second, savings banks and banks already hide the cost of the VAT they can’t deduct in the price of their fees. The reality is that consumers are already paying it without knowing. And third, the banks are being pragmatic and are only asking the government to let them charge VAT at least on transactions with businesses, so that both the banks and their business customers could deduct it.
So who would really end up footing the bill? The public purse, because the amount paid into the state coffers would be smaller, and the bankers themselves admit as much. Little wonder the tax authorities aren’t keen, least of all at a time of budget difficulties. But the lobby is persistent.
Source: Multiplícate por cero
Featured image: Luis García from Madrid ( Spain )., CC BY-SA 2.0, via Wikimedia Commons.
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