Not too taxing

21 October 2010 By George Hay Follow @gfhay

The government has set out details of how its balance sheet tax will work, but is still tinkering with the exact rate. That s because the mooted charge would raise more than the 2.5 bln stg limit. As long as ministers stick to that cap, banks face a lower rate than anticipated.

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Britain on Oct. 21 confirmed it plans to raise about 2.5 billion pounds a year by 201213 via a permanent levy on the worldwide balance sheets of UK banks and the UK operations of foreign banks.

Publishing draft legislation, the government avoided stating the actual rate that individual banks will pay. It will instead consult on the matter until Nov. 19.

Previously, the government had indicated that the levy would charge an annual 7 basis points on taxable liabilities with duration of less than a year. Longerterm liabilities would attract a charge of 3.5 basis points.

The levy's draft legislation says that banks with worldwide operations can deduct all deposits that are covered by a statutory or staterun guarantee or insurance scheme. Any other deposits will be subject to half the headline rate, in the same way as longer maturity liabilities.

The government is also discussing arrangements to alleviate double taxation with other countries that plan to introduce bank balance sheet levies.

Taxable liabilities will be defined as total liabilities and equity minus Tier 1 capital, insured retail deposits, repos secured on sovereign debt, and policyholder liabilities of retail insurance businesses within banking groups.

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