The distorting effects of the Tobin tax

Luca Enriques, professor of commercial law at Bocconi University, explains to Il Foglio what is amiss with the increase in the Tobin tax – the tax on share transactions involving Italian companies with a market capitalisation exceeding 500 million euros – which the government intends to double via the Budget Bill, having already done so in last year’s legislation: “Let’s take two big names from the Milan Stock Exchange: when buying shares in Campari, a company incorporated under Dutch law, you do not pay the Italian Tobin tax, but when buying shares in Leonardo, you do. This is because the tax depends on the registered office of the company that issued the shares, not on the market on which they are traded.” Stefano Firpo, Director-General of Assonime, is equally critical: “The increase is very steep: it means the tax on listed shares of Italian companies will have quadrupled by 2025. It is a measure that puts the Italian stock exchange at a massive competitive disadvantage compared with other countries. There has been no consultation with market operators or trade associations; it came out of the blue.”

Article 15 of the budget bill – still under consideration in Parliament – doubles the standard rate of the Tobin tax from 0.4 to 0.8 per cent on OTC trades, whilst for regulated markets the levy rises from 0.2 to 0.4 per cent (in 2025 it stood at 0.1 per cent). The Ministry of Economy and Finance’s technical report forecasts, by doubling the estimated revenue for 2026, approximately 1.38 billion euros in additional revenue from 2027 onwards. However, this estimate does not take into account the possible reaction of investors. “It is a forecast, but investors react to taxes by reducing trading volumes or changing their investment instruments and strategies,” observes Enriques. “Above all, empirical evidence shows that this type of tax can both depress share prices – because investors factor in the expected costs – and increase the cost of capital for companies, as well as reduce market liquidity.” Firpo adds: “It acts as a general disincentive to investment in the stock market. And it comes at a time when the Italian market is already illiquid, with low trading volumes, and in crisis due to a lack of IPOs and the ongoing delisting of companies.”

The increase in the Tobin tax will make it more expensive to invest in Italian companies than in those of other countries. However, this is a ‘bipartisan’ measure, first proposed by the anti-globalisation movement in the early 2000s and implemented for the first time by the Monti government in 2012, which, however, has the opposite effect to attracting capital: it drives it away. This is particularly true given that taxation is lower in other EU countries. “Germany and the Netherlands do not have an equivalent tax. In Spain it stands at 0.2 per cent, in France at 0.4 per cent but with a market capitalisation threshold of 1 billion euros – double that of Italy,” notes Enriques. “Let’s at least try to bring ourselves into line with other countries,” emphasises the director-general of Assonime. “With the Capital Act, the government has raised the threshold for listed SMEs to a market capitalisation of one billion. So let’s use that definition; let’s not invent a new one, shall we?”

Enriques then clarifies: “It is a tax on share purchases, the cost of which falls on investors. It could affect large international funds, but also small savers and those investing through supplementary pension schemes.” Firpo adds: “Fund management fees could also rise, because this tax also affects the dynamic management of their portfolios and will need to be covered. Even now, large international index-tracking funds allocate a maximum of 3 or 4 per cent of their investments to Italy. We now risk this allocation being reduced even further.”

Enriques highlights the asymmetries between Italian companies with headquarters in different countries, which would thus be exacerbated: “A company with its registered office in Italy remains subject to tax even if its shares are traded in New York. Conversely, a company with its registered office in the Netherlands can be listed in Milan without its shares being subject to the Italian Tobin tax. Instead of removing incentives to relocate, we are reinforcing one.”

Firpo concludes: “It is a measure that is not only inconsistent, but also contradictory to other initiatives by the same government: the reform of the TUF, the extension of the IPO bonus, and the initiative with CDP on the fund of funds. What the MEF does with its left hand, it then undoes with its right.” Finally, he announces: “We will soon demonstrate, in a united manner, our astonishment and our opposition to this measure.”