Should we abolish stamp duty?

A new report from the IFS examines whether there is a case for abolishing stamp duty on share transactions. The report finds that:

• despite fears in some quarters, in the short term the government should be able to protect its existing stamp duty revenues against emerging avoidance schemes. However, revenues may be threatened in the longer term, particularly if multinationals opt to become pan-European companies under the European Company Statue;
• but while stamp duty may be a viable tax into the future, there are major arguments against using it as a source of revenue. It reduces the efficiency of the stock market, it is worse for investment than other forms of taxation and it distorts merger and acquisition activity, producing a bias towards overseas rather than UK ownership;
• given this, it is worth considering alternative sources of revenue that could replace stamp duty on shares. The most practical option would involve reducing or abolishing stamp duty and increasing the corporation tax rate. This should allow the government to raise the same revenue in a more efficient manner. Other options considered in the report would either be impractical or would fail to tackle the underlying distortions produced by the stamp duty system.

Wider considerations may mean that the government would be reluctant to increase the corporation tax rate explicitly. But if this or a future government were to consider a reduction in corporation tax, the report's findings suggest that the revenue might be better used to cut or abolish stamp duty.

Ends

Notes to Editors

1. Stamp duty is a worldwide tax on share transactions in UK incorporated companies. It is chargeable whether the transaction takes place in the UK or overseas, and whether either party is resident in the UK or not. It is currently levied at a rate of 0.5% of the transaction value and in 200001 raised ô.5 billion in revenue.
2. "Stamp duty on share transactions" by Mike Hawkins and Julian McCrae is published on Monday 17th June 2002. It is available from IFS for £40 (£25 to IFS members). The report will be launched at a briefing at 1pm.
3. For press enquiries and press copies of the report, contact Emma Hyman (020 7291 4850).