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IMF Suggests Crisis Tax


The IMF suggests that the "Big Twenty" countries to assess two additional taxes on large banks. The idea was floated at a meeting of the G-20 Ministers of Finance in Washington. The suggestions will be finalized at the Heads of State summit in June.

Rossiiskaya Gazeta advisor Nikita Maslennikov, an expert from the Institute of Contemporary Development, explained that Russia will be obliged to impose the new taxes if "The Twenty" endorse them.

According to reports, the IMF has suggested assessing banks and other financial institutions a new flat-rate tax that would support a fund to cover bank loses in case of another global financial crisis. The fund should be 2-4% of the country's GDP. Secondly, IMF proposes raising taxes on bank profits as well as employee pay.

These suggestions are timely. The G-20 leaders have been waiting for the IMF to propose concrete idea since as early as last year. However, there are still many ambiguities in IMF’s plan at present. For example, it is unclear how the fund will be assembled, its duration, and the contribution rate for each country. Maslennikov believes that 2-4% of GDP is quite a lot. Today in Russia, the income level of the state budget composes about 20% of the GDP, and an additional 4% would be a considerable burden on business.

According to Maslennikov, it is possible that the IMF threw out the idea because it wants to solve its own fund shortages one way or another. If the G-20 denies its suggestion, the IMF will attempt to persuade the G20 members to increase contributions to IMF, he assumes.

But, in any event, Maslennikov believes Russia should hold firm. He states that the Financial Stability Board can inspect the Russian system for conformity to international standards in 2011. Last week, Gennady Melikyan, First Deputy Chairman of the Central Bank, spoke about the necessity to follow G-20 guidelines.  In his opinion, if the Basel Committee on Banking Supervision decides to exclude subordinated debt from bank capital, Russia will be forced to accept this standard.

According to news agencies, Alistair Darling, Finance Minister of Great Britain, has already endorsed the tax initiatives of IMF.  France supports these measures as well, while Canada remains opposed. “Everything will end in a compromise, but for the near future, an exciting bank thriller will unfold under our nose" Maslennikov concluded.

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