Summary

Capital markets are essential to economic growth, innovation, and job creation. However, poorly designed tax regimes can deter participation and undermine the broader benefits of capital markets.

This paper outlines policy recommendations aimed at fostering investment, enhancing capital formation, and supporting economic development. A well-calibrated tax system should reduce barriers to market access, incentivise productive investment, and simplify compliance for both issuers and investors.

Key recommendations include:

  1. Eliminate Financial Transaction Taxes (FTTs): FTTs increase trading costs, reduce liquidity, and deter both investment and issuance. Evidence shows they harm market efficiency and ultimately fail to achieve their intended policy outcomes.
  2. Provide Tax Relief for Investors: Tax incentives for pension savings and retail investment accounts, as well as reducing withholding taxes on dividends, can boost long-term savings, support equity investment, and promote financial inclusion.
  3. Eliminate Taxes on Listings: Removing levies on public listings makes it more affordable for companies—especially SMEs—to access public markets. Further, tax incentives for first-time listings and deductions for listing and IPO-related expenses can stimulate new issuance and capital raising.
  4. Incentivise Clearing: Taxes on clearing activities undermine financial stability and deter central clearing—an internationally recognised risk-mitigation tool. Ensuring tax neutrality between cleared and non-cleared trades supports safe and efficient markets.
  5. Simplify Tax Reporting: Complex and inconsistent tax requirements discourage investment, particularly cross-border. Automation, clear guidance, and exemptions for small investors can reduce compliance burdens and expand participation.
  6. Remove Cross-Border Tax Barriers: Harmonising reporting requirements, strengthening double taxation treaties, and aligning treatment of domestic and foreign investors can boost global investment flows, particularly to emerging markets.

By adopting these measures, policymakers can create an investment-friendly tax environment that strengthens capital markets, supports sustainable growth, and enhances international competitiveness.