Plans to introduce an EU-based financial transactions tax (FTT) are set to be scaled back drastically, as member states debate the scope and timing of the new levy.
Disagreements among the 11 EU countries which have given the FTT concept their backing mean that a redesigned levy is likely to raise only about one tenth of its original target, which was estimated at up to €35bn (£30bn) a year.
The original proposal involved a harmonised minimum 0.1% tax rate for transactions in all types of financial instruments except derivatives (0.01% rate), but this is likely to be cut further.
It is also likely that the FTT will be introduced on a staggered basis, starting with shares only from next year and bonds up to two years later. There is considerable doubt about plans to levy the tax on the trading of complex derivatives worth trillions of euros. The initial aim was for the tax to be levied on all trades in stocks, bonds and some derivatives from the beginning of 2014.
In a statement, Algirdas Semeta, the European commissioner in charge of tax policy, said: 'There is a lot of technical work to be done still on the proposal. Depending on the speed of progress from here, it is still feasible that the common FTT could be implemented in 2014, although January 2014 is looking less likely.'
An EU spokesman said that the 11 member states remain 'fully committed to the harmonised approach to the FTT'.
'We believe it is a solid proposal, and well-designed tax. Of course we are not naive enough to believe that the proposal will be adopted word and letter as we tabled it - this is rarely (if ever) the case in EU negotiations. But member states need to weigh up very carefully the pros and cons of changes they may want to make, and understand fully the impact this will have,' the spokesperson said.
The concept of the so-called Tobin tax has been strongly criticised by several EU member states, including the UK which has begun legal action on the issue.
While Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia have signed up to go ahead, in recent weeks splits have emerged within this group. Italy and France have raised concerns about widening the tax to include government debt over fears this would disrupt the bond market.
Early adopter Hungary has also faced problems as stock market volumes have fallen as a result of the early introduction of the tax.
