Will a redistribution of global resources using Tobin Tax offer a route to development and economic growth for poor developing countries of the South?

Makhosazana

The imposition of the so-called Tobin Tax on developing countries economies is just a waste of time. These countries are already writhing in the agony of heavy taxation some going as high as over 50%. You have added levies, VAT, Fuel levy, AIDS tax/levy, Carbon Tax, Unemplyment benefit taxes etc etc. Now if you add the Tobin tax over and above the said burden, you are likely to worsen the situation, by subjecting the citizens under a back-breaking tax burden. In fact you are likely to achieve the opposite, with a lot of transactions going underground via the so-called Black market. For developing countries that desperately need urgent foreign direct investment, the imposition of any additional tax burden is a guarantee of loss of such investment. Chances are that even existing investors are likely to fold and relocate to other regions because most developing countries are characterised by depreciating currencies and political risks (eg Zimbabwe). Upon telling Zimbabweans in the diaspora that their money they send home to their suffering families will be subjected to Tobin Tax, one is guaranteed of the fact that these Zimbabweans will use unofficial under ground means to send their moneys home thereby catalysing the everdownward trend of the Zim $.

For starters the following fact sheet compiled by a pro-Tobin tax organisatiion will suffice:

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Tobin taxes...
What are Tobin Taxes?

They are simple sales taxes on currency trades across borders. The original proposal came from James Tobin, Ph.D., a Nobel laureate economist at Yale, but economists have since refined his approach. Tobin Taxes can be enacted domestically by national legislatures, but will require multilateral cooperation to be effectively enforced... Political will for passage is the major obstacle to be overcome, by citizen mobilization...

The proposal is important due to its potential to prevent financial crises. Also, the estimated $100 - $300 billion per year makes it possible to meet urgent global priorities, such as preventing global warming, disease, and poverty. Help turn the tide towards global solutions in the 21st century...

How Tobin-style Taxes would work:

Currency speculators trade over $1.8 trillion dollars each day across borders. The market is huge, and volatile.
Each trade would be taxed at 0.1 to 0.25 percent of volume (about 10 to 25 cents per hundred dollars)
This would discourage short-term currency trades,about 90 percent speculative, but leave long-term productive investments intact.
The currency market would thus shrink in volume, helping to restore national economic autonomy. Nations again could intervene effectively to protect their own currency from devaluation and financial crisis.
Billions in revenue, estimated at $100 - $300 billion per year, would be generated.
Revenue could go into earmarked trust funds to fund urgent international priorities.

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Lobengula:

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The imposition of the so-called Tobin Tax on developing countries economies is just a waste of time.

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Tobin Tax or the Currency Transaction Tax largely relates to a few big financial actors in the currencies market. Developing countries would play a largely insignificant role in this exercise in my view. The money would largely be generated from the financial markets of the rich Northern countries, and ploughed into the developing countries to alleviate poverty. Advocates of Tobin Tax argue that the currencies market is a multi-trillion dollar industry and if a small tax is imposed on it, vast amounts of much needed money for development would be generated.

The Currency Transaction Tax will be imposed in two ways. The first is taxing the currency trading desk in a particular country and the second is taxing a particular currency. The collection of tax would be easier and more efficient if the Tobin Tax is imposed on the currency. Tax evasion would be immensely difficult give the electronic nature of the currencies market. Given the fact that the rate of taxation would be minimal, there would be no incentive at all to evade tax. The cost of evasion would far outweigh paying tax.

Tobin Tax by its very nature would stabilise, currencies that are subjected to excessive speculation. In my view there will not be capital flight precipitated by the imposition of Tobin Tax. In fact we are likely to see an increase in Foreign Direct Investment as a result of the imposition of Tobin Tax, as market volatility would ease.

Lobengula I agree with you that Foreign Direct Investment (FDI) is necessary for developing countries. But it can not by itself spearhead a country's development. FDI does not involve technology transfer to the developing countries and therefore gives a scenario of distorted development. Instead of contributing to capital inflow, Transnational Corporations are responsible for the outflow of capital through the repatriation of profits. The mere existence of FDI in a country in my view does not necessarily make a positive contribution to the balance of payments. Abruptly opening up the domestic market to big international players kills local industry. There would be need for strategic bargaining and the increased efficacy of tax and regulatory policies for FDI to work and benefit individual developing countries.

Lobs lo Makhosazana hk hk hk yehlani kancane please hk! Seliloba ngaphezu kwamakhanda oquqaba olulapha hk hk hk Lixoxa ngani vele hk hk! Yeeeeee kwatshu'umsobho kwasal'amaqatha ngo Toby lowo........vele kutheni kanti?

Africa's economies are poorly structured for the Western model of micro-economic policy to work as a development tool.

Taxation, in itself, is a punitive concept but in western societies/economies, that can be offset by the tangible benefits in the form of working health/education/transport etc systems.

In Africa, decades of taxation have brought us ox-drawn ambulances, healthcare/education for a select few etc. Taxation, especially income tax, must be abolished for the already poor masses in Africa.

Mabila,

Tobin Tax is a proposed tax that will raise the much needed revenue to fund development programmes in poor countries. It is anticipated that the introduction of this tax will generate massive revenue that can be used to alleviate poverty. Some poor countries like Uganda, Tanzania and Malawi to name a few receive direct budgetary support from donors (as much as 50% in some countries). It stands to reason that there should be a permanent source of funding to support development activities. Tobin Tax is aimed at raising such funds to benefit all developing countries.

Ngikuhloniphe Mnumzana Skuvethe,

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Taxation, in itself, is a punitive concept but in western societies/economies, that can be offset by the tangible benefits in the form of working health/education/transport etc systems.

In Africa, decades of taxation have brought us ox-drawn ambulances, healthcare/education for a select few etc. Taxation, especially income tax, must be abolished for the already poor masses in Africa.

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You raise important philosophical questions relating to the concept of taxation in general and not Tobin Tax per se.

That taxation is illegitimate and therefore a form of theft is a familiar theme in classic libertarian rhetoric. It follows, therefore, in your reasoned analysis that citizens of states which violate the social contract have neither a duty nor obligation to pay tax. This line of reasoning suggests, in line with libertarian thinking, that there should only be a minimal state. Only then can citizens enjoy full liberty and unfettered rights. But even the most radical of libertarians would agree that some form of taxation is needed to fund the activities of the minimal state.

Your comments Skuvethe raise important philosophical questions on the theories of justice and social contract, and whether or not taxation can be used as an instrument of redistributive social justice. In that vein we need to seriously ask ourselves whether citizens need a minimal state or a welfare state. The kind of state perhaps determines the level of taxation that can be deemed acceptable.

This would be a stimulating debate, which would however require a separate thread, as we can not do justice to it here.

"What are Tobin Taxes?

They are simple sales taxes on currency trades across borders. The original proposal came from James Tobin, Ph.D., a Nobel laureate economist at Yale, but economists have since refined his approach. Tobin Taxes can be enacted domestically by national legislatures, but will require multilateral cooperation to be effectively enforced... Political will for passage is the major obstacle to be overcome, by citizen mobilization...
How Tobin-style Taxes would work:
Currency speculators trade over $1.8 trillion dollars each day across borders. The market is huge, and volatile.
Each trade would be taxed at 0.1 to 0.25 percent of volume (about 10 to 25 cents per hundred dollars)
This would discourage short-term currency trades,about 90 percent speculative, but leave long-term productive investments intact.
The currency market would thus shrink in volume, helping to restore national economic autonomy. Nations again could intervene effectively to protect their own currency from devaluation and financial crisis.
Billions in revenue, estimated at $100 - $300 billion per year, would be generated.
Revenue could go into earmarked trust funds to fund urgent international priorities."

Bakwethu! Above is information I got from a webhusayithi about the Tobin Tax. Is this tax already operational?? Which are those earmarked trust funds that will receive these taxes and whose prioritised interests will be served by the funded urgent international concerns?? Do African economies conduct sufficient volumes of currency trading to generate the revenues or would they have to rely on the revenues generated by the developed world?? AMaqhinga manengi!

Mabila,

Kutsho ukuthi awubalanga okubhalwe nguLobengula ngaphezulu ngoba nanku usukuphinda. It appears to me that most, if not all of your questions have already been answered above.

Makhosazana

Your proposal relating to the so-called Tobin Tax or tax on foreign exchange transactions has been fully studied and analysed by various institutions.
The University of Antwerp in Belgium conducted a full study of the Tax on Foreign-Exchange Transactions (Tobin Tax)in 1999, and their comprehensive report(study) made very interesting conclusions:

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A Currency Transactions Tax (CTT) of the form usually discussed could very probably be reliably collected through the foreign-exchange-settlement system, and, if all major countries, or even the four to six authorities issuing the major vehicle-currencies, agreed to impose it at a uniform rate of the order of 0.05% to 0.1%, it could probably raise sums of the order of $75-200 billion a year or more. A strong case on grounds of justice could be made for devoting a large proportion of this sum (the great bulk of which would be collected by the authorities of a few rich countries) to the fight against world poverty or to other global purposes such as peacekeeping. But, to encourage general participation, which would be desirable in order to guard against the eventual development of vehicle-currencies outside the system, each participant should by agreement keep a certain part of the amount collected. That part would need to be defined in some equitable way---for example as some function of (a) the amount collected and (b) a certain fixed amount (say $5) per head of population.

At such low rates it would probably reduce short-term speculative foreign-exchange transactions somewhat, while having very little effect on international trade in goods and services or long-term investment.

This differential reduction in short-term speculative foreign-exchange transactions in itself would very probably decrease general exchange-rate instability to some extent. But, in the simple form in which the CTT has usually been discussed (a single, very low, uniform rate), the tax might well have little impact on the major speculative flights of currency that have been among the most disturbing economic phenomena of the 1990s.

However, a two-tier CTT---with a second, much higher, penal rate to be applied (a) temporarily, (b) under prior announcement, (c) on objective criteria, to transactions in any currency whenever the exchange-rate of that currency had changed at more than a certain velocity---could be used with every prospect of success to prevent sudden speculative flights of currency.

The mere fact that such a mechanism was known to be in place would very probably prevent any such speculative rush from beginning, so that the higher rate might never have actually to be applied.
This would not block useful exchange-rate adjustment.
It need also not reduce in any way a country’s autonomy in exchange-rate policy.

It is not the only plausible way in which such crises might be avoided; but

it is superior in a number of ways to conventional exchange-controls;
more confidence might be placed in it than in Chilean-type fiscal disincentives to short-term-capital imports, useful as these might be if imposed well in advance of a potential crisis and applied to all inflows; and
it seems more likely politically to be offered, and more credible if promised, than an undertaking from the outside world to intervene massively in the currency markets (by buying any threatened currency) in order to prevent over-rapid exchange-rate changes.

It could in principle be applied unilaterally by a country with the appropriate institutions (which are readily accessible and which many now possess) to defend itself from speculative currency flight; but an international arrangement might inspire more confidence and would cover those lacking these institutions.

All the device requires is that the mechanism for collecting a CTT be set up. The regular lower-tier rate might be very low or zero without preventing the threat of a higher rate from blocking speculative currency flights.

Given the uncertainty about the effect of a CTT on the volume of foreign-exchange transactions, the lower tier should be introduced initially at a very low rate---and then raised gradually as and if raising it appeared to be justified by the effects (or lack of effect) on the volume and pattern of currency trading and on "real" transactions. With a rate of 0.01%, revenue raised would probably still be substantial. After observing the effect of a tax at that rate, the governments concerned could proceed from there to increase the lower tier as seemed appropriate, and so probably to provide, if they chose, very substantial sums for such global purposes as social development, peacekeeping and environmental protection.

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Makhosazana, you need to realise that the whole essense of the age-old debate about the Tobin tax is primarily to curb currency volatilities in the risky speculative financial markets where very complex derivative products are transacted on-line across the numerous money markets. The primary aim or objective of this tax proposal is not to fund or finance or raise money or donate money to poverty saturated underdeveloped countries. The primary aim is to contain speculative tendencies in the volatile financial markets that in most cases breed crises as witnessed recently in Asia , Mexico, Argentina and Russia. The argument about using this form of taxation to raise money for the foreign-aid dependent poor countries is just a ploy to give this form of taxation a veneer of respectibility and integrity.

The simple basic and fundamental questions that one must ask are:

1) If the poor countries are given this money so-raised, how will it differ from foreign aid or foreign debt that have debilitated these very developing countries economies?

2)How will the poor countries pay-back this money to whosoever would have advanced it to them?

3)Poor countries are already steeped and mired in a quagmire(udaka) of debt, now if you add another mountain of debt to their already back-breaking debt burden, wouldn't this be tantamount to folly?

4) Given the fact that foreign exchange transactions are characterised by currency volatilities and the gyrations(Chairman hk)of the stock markets' bullishness(optimistic) and bearishness (pessimistic), will linking the fate of the poor to the vagaries of the uncertain fever pitch of the so-called yield curve, solve their perpetual problems of under-nourishment and squalour?

5)Linking the financial fate of the poor to the unforgiving and heartless market forces will be a little bit to overzealous. You can imagine abject and toiling villagers in Tsholotsho being told (by a fund manager) that they must watch the behaviour of US interests rates closely paying particular attention to the term structure of these interests rates because the spread (difference) between the US 10 year Treasury rate and the Libor (London Interbank Offering Rate) will determine the future of the yield curve, which in turn will determine forward exchange rates, from where the taxation thereof will be deducted on transactions!!!!!. This will be the worst we can do to our villagers.

Methinks that the poor countries are imbued with very good climates, very good soils, very cheap labour, very abundant resources (minerals, women, agricultural soils, vegetation etc etc), and they just need to embark on raising their industrial productivity rates. They need to eliminate idleness (idle labour, idle industries, idle minds, idle soils, idle idiots, idle blah blah blah). We need to put our hands in the mud and start engaging in mortar and brick type of productivity. We can not wait and keep hoping against hope that one day, I one day, our children will benefit from a form of taxation called Tobin Tax. That will be self inflicted myopia on our party. Nothing beats productivity. There is no such thing as a free lunch. Africa must just get its hands dirty and start ploughing, digging and producing. The continent with the least utilised resources in the world is Africa. We just can not begin to talk about Knee-Pad (Nepad) while on the other hand we are grovelling with a large bowl to the very forces that have brought unprecedented misery to Africa. Let us be like the Asians.

Kuyabongeka Samdala!

lami ngiyayazi i tobin tax. iyakhathaza

Makhosazana

What then is our conclusion on this Tobin Tax? Are you saying the world should venture into it or should embrace it?
You should remember the age-old adage which asserts that: the business of business is business. Taxation has a tendency to crowd out investment and literally drive business elsewhere where corporate taxes and transactional levies are very low or are non-applicable.

African economies are suffering partly because of their reliance on extremely high taxation regimes.