WP/01/67 IMF Working Paper Bank Debit Taxes in Latin America: An Analysis of Recent Trends Isaias Coetho, Liam Ebrill, Victoria Summers INTERNATIONAL MONETARY FUND© 2001 International Monetary Fund WPI0V67 IMF Working Paper Fiscal Affairs Department Bank Debit Taxes in Latin America: An Analysis of Recent Trends Prepared by Isaias Coelho, Liam Ebrill, Victoria Summers! May 2001 Abstract ‘The views expressed in this Working Paper ac those of We authors) ad do nat necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the suthor(s) and are published to elicit comments and to further debate. Six Latin American countries have levied taxes on withdrawals from bank accounts, Which have been viewed as a convenient tax handle during a difficult fiscal period. The paper reviews the arguments for and against this type of taxation, describes the taxes, and surveys their revenue performance and economic impact. It concludes that the recently implemented taxes have been successful in raising revenue in the short term, but that adverse allocational impacts have likely been significant. The tax may work better in times of fiscal crisis, when financial intermediation is deep, and when the tax rate is modest. JEL Classification Numbers: H29 Keywords: Financial transactions taxes, bank debit taxes, Argentina, Brazil, Colombia, Ecuador, Peru, Venezuela Author's E-Mail Address: icoelho@imf.org, lebrill@imf.org, vsummers@imf org " The authors would like to thank their many IMF colleagues who provided useful comments and information,Contents Page Introduction. Il Bank Debit Taxes: Theoretical Considerations... Il _ Recent Experiences with Bank Debit Taxes: The Cases of Argentina, Brazil, Colombia, Ecuador, Peru, and Venezuela A. Circumstances of Introduction of the Taxes... B. Broad Characteristics of the Tax... IV. Evaluation of the Latin American Bank Debit Taxes A. Revenue Productivity B. Allocational Effects. CC. Crediting of the Tax Against Other Taxes. V. Conclusion: Figures 1. Rates of Taxes on Bank Debits, by Country.. 2. Revenue from the Bank Debit Tax in Selected Countries 3. Curreney/Money Ratio for Selected Countries 4. Colombia: Volume of Cleared Checks, 1998-99. 5. Colombia: Interbank Market Weekly Tumover, January 1998-May 2000 Box 1. An Optimal Tax Perspective on Bank Debit Taxes... 2. Brazil: Stock of Shares Set Aside for Depository Receipt Ope Appendices I ‘The Australian Debit Tax. IL ‘Traditional “Stamp Duties”. I. Summary of Taxes on Financial Transactions... References..