Financial Transaction Tax

A financial transaction tax (FTT) is a tax imposed on dealings in financial instruments. It is typically charged as a small percentage of the value of each transaction, and it may apply to shares, bonds, derivatives, foreign exchange or some combination of these. Unlike taxes on income or gains, it is due whether or not the investor makes a profit, and it is usually collected by brokers, exchanges or settlement systems at the time of the trade.

Governments use such taxes to raise revenue from the financial sector, and some advocates also see them as a way to discourage short-term speculation. They are a type of indirect tax. The oldest surviving example is the United Kingdom's stamp duty on share transfers, which dates from the seventeenth century. A tax aimed specifically at currency trading is usually called a Tobin tax.

In 1936 John Maynard Keynes suggested that a substantial tax on stock market transactions might reduce the dominance of speculation over long-term investment. In 1972 the economist James Tobin proposed a small tax on currency conversions to dampen destabilising short-term capital flows after the end of fixed exchange rates. The idea was revived after the 2008 financial crisis, when governments looked for ways to make the financial sector contribute to the cost of rescues.

• Tax base. Most existing taxes cover only purchases of shares in domestic companies. Broader versions add bonds and derivatives, which are harder to tax because their value can be defined in several ways.
• Territorial principle. A tax based on where the trade takes place is easily avoided by trading elsewhere. A tax based on where the issuer is incorporated follows the security wherever it trades and is harder to escape. A tax based on the residence of the parties reaches further still.
• Rate. Rates on shares generally range from 0.1% to 0.5%. Proposed rates for derivatives are far lower, because of their large notional amounts.
• Exemptions. Most regimes exempt new issues, and many exempt a market maker, clearing houses, intraday netted positions, smaller companies or government bonds.

In the United Kingdom, purchases of shares in UK-incorporated companies bear stamp duty or its electronic equivalent, stamp duty reserve tax, at 0.5% of the price. The tax follows the issuer, so it applies wherever the buyer is located, and legal title cannot be registered unless it is paid. Special rules apply to shares held through a depositary receipt programme.

France introduced a tax in 2012 on purchases of shares in large French companies, those with a market capitalisation above one billion euros. The rate, first 0.2%, was raised to 0.3% in 2017 and to 0.4% in 2025. Italy followed in 2013 with a tax on shares and equity derivatives of Italian companies, and Spain in 2021 with a 0.2% tax on shares of large Spanish companies. Outside Europe, Hong Kong charges stamp duty on both buyer and seller of shares, India levies a securities transaction tax on exchange trades, and several other Asian markets have similar charges. In the United States, a small fee on securities sales funds the Securities and Exchange Commission, but it is a regulatory fee, not a general tax.

Sweden introduced a tax on share trading in 1984 and later raised it and extended it to bonds. Because it was charged on trades made through Swedish brokers, investors moved their dealing abroad, chiefly to London. Trading volumes in Swedish shares on the home market fell sharply, bond and derivatives trading shrank dramatically, and revenue came in far below forecasts. The tax was abolished in 1991. The episode is the standard example of how a poorly designed transaction tax can drive activity away, and it explains the later preference for taxes based on the issuer.

In 2011 the European Commission proposed a common tax across the Union, with minimum rates of 0.1% on trades in shares and bonds and 0.01% on derivatives, applying where at least one party was established in a member state. Unanimous agreement proved impossible. In 2013 a group of eleven member states was authorised to proceed among themselves under the enhanced cooperation procedure, but they did not agree a final design, and no common tax has been adopted. In its work programme for 2026 the Commission said it intended to withdraw the proposal. National taxes in France, Italy and Spain filled part of the gap.

Supporters argue that the tax raises significant revenue at low rates from a sector that is exempt from value added tax on most of its services, that it falls mainly on wealthier households and frequent traders, and that it may curb high-frequency trading and other activity of little social value.

Opponents argue that the tax reduces liquidity, widens the bid-ask spread and lowers share prices, raising the cost of capital for companies. They point out that the tax incidence does not rest only on traders: it is passed on to savers through pension funds and investment funds that must trade to manage their portfolios. Empirical studies generally find that transaction taxes reduce trading volume, with mixed evidence on volatility, which in some studies rises as markets become thinner. Avoidance through derivatives and untaxed instruments such as contracts for difference also erodes the base.

• European Commission: Taxation and Customs Union
• HM Revenue and Customs