Stamp Duty – Definition

What is Stamp Duty

Stamp duty is a tax on documents. Legal documents do not go unlevied, the tax levied of legal documents such as receipts, bank cheques, land transactions, marriage license and other transaction is called stamp duty. Once payment is made on levied documents, a tax stamp has to be affixed or printed on the document, this will indicate that the stamp duty had been paid. Once a stamp duty is paid, the document then becomes legally effective. More modern versions of the tax no longer require a real stamp but there is something to indicate that stamp duty payment has been made.

A Little More on What is Stamp Duty

Stamp duty is also called stamp tax. The origin of stamp duty can be traced to Spain in the 17th century. The stamp duty was initiated in America when the British Parliament passed the Stamp Act in 1765. Aside from legal documents, stamp duties were also used for copyrights, the transfer of houses, buildings, land permits, patents, securities, and other transactions. This tax was extended to the American colonists.

After the origination of stamp duty at beginning of the 17th century, it was later introduced throughout Europe in the next century. Countries such as Netherlands, France, Denmark, Prussia, and England adopted stamp duty.

The United States raise revenue through property taxes, import duties and stamp duty on both legal and financial transactions. But now, income and excise taxes have become a substantial tax base for the government. Due to this fact, many believe that it is the right time to do away with stamp duties but stamp duties still exist.

The application of stamp duties are not limited to financial transactions, they are also levied in the real estate such as on properties sales, or transfer of properties. Furthermore, stamp duties are levied on mortgages, loans, and other transactions.

There are certain ways tax duties are levied on transactions and documents in Britain. In real estate or mortgage industry, for example, no stamp duty was levied on homes not more than £500,000. That is, for properties up to £500,000, there would be no stamp duty paid on the initial £300,000. This stamp duty was on homes up to £300,000 was abolished in Britain towards the end of 2017. First time home buyers benefit from this removal of stamp duty more than old buyers, 80% of first time home buyers were able to save up to £5,000. However, when the stamp duty was abolished, criticisms arose from the labor party at that time.

References for Stamp Duty

Academic Research on Stamp Duty

•    The Influence to Stock Market Price by Reducing the Stamp Tax [J], Xin-ying, W. A. N. G. (2004). Taxation and Economy, 5, 016. The relationship between the stock market and stamp tax is such that the stock price has effect on stamp duty rate. This paper studies how stock market price influence the reduction of stamp tax. Despite that stock market price has the ability to influence reduction in stamp duty, its effects can be weakened given certain indices. It also examines how market volatility influence the reduction of stamp duty. Market volatility refers to the degree of variation in trading prices, this variation is often measured using the standard deviation of logarithmic returns. The findings if the study carried out are outlined.

•    National stamptax laws and state instrumentalities, Powell, A. L. (1935). American Political Science Review, 29(2), 225-246. Stamp duty or tax originated first in Holland in 1624, it emerged when the state was in a dire need of revenue. In 1694, England also adopted this kind of taxation for generating revenue. Stamp duties over the years have helped the government generate revenue. When the stamp duty as a form of taxation was suggested to the United States in 1797, it was initially applied to state legal documents. However, stamp duties now perform more functions than just being levied on judicial documents. There are certain constitutional laws on stamp duty at the national level, this paper investigates national stamp tax laws as well as state instrumentalities.

•    An assessment of the Influence of Securities Transaction Stamp Tax on Stock Price Volatility [J], Xinyan, Y. Y. (2008). Finance & Economics, 11, 007. Previous studies have been done on the impacts of market stock price on the reduction stamp duty. This paper however assesses the influence of securities transaction stamp tax on stock price volatility. This paper uses regression analysis and GARCH model to assess the interplay between securities transaction stamp tax rate and how markets adjusts to this. Using the Shanghai market in 2007 and 2008, this paper investigates stock market volatility and how it is influenced by stamp tax rate. The analysis carried out in this paper reveal that the overall stock market of China and policy formulation have effects on securities stamp tax adjustment.

•    Stamp duties, land tax and housing affordability: the case for reform, Wood, G., Ong, R., & Winter, I. (2012). Austl. Tax F., 27, 331. Real estate and rent prices have risen from the average earnings over the last 25 years, prompting more Australian households to focus on the stress of home accessibility. The deterioration of the convenience of housing is due to a series of federal and state tax provisions that distort the use of land and buildings. This affect the efficient operation of real estate markets. This paper analyses the case of reform in stamp duties and this would have positive impact on land tax and housing affordability. This paper suggests practicable ways that would enhance reforms in and tax and stamp duties.

•    The Communication Mechanism Between Dividend Tax and Stamp Tax [J], Ling-nan, S. L. Y. O. (2008). Taxation and Economy, 5, 016. This paper highlights the interaction between dividend tax and stamp tax. While stamp tax is levied on financial interactions, legal documents, cheques, marriage licenses, land and house agreements, and other transactions. Dividend tax on the other hand, are taxes imposed on dividends of a company. The paper investigates the communication mechanism between dividend tax and stamp tax.  It studies the variety of dividend tax rate and their effects on the variety of stock pricing. This paper suggests the kind of trade that would reduce dividend tax and increase stamp tax and also construct a communication mechanism between the two taxes.

•    Stamp Tax on Shares of No Par Value, Rogers, L. H. (1922). Cent. LJ, 95, 448. Initially, no par value stock refer to the price a company sells its shares but overtime, no par value stock is also used to describe shares issued without a par value (face value of a bond). This paper examines stamp tax on shares of no par value, it considers federal requirement on the value of stamps required on original issue of no par value stock. The findings of this study are extensively discussed in the paper.

•    The Graduated Farm Land Transfer Stamp Tax, Baker, J. A. (1940). The Journal of Land & Public Utility Economics, 16(1), 21-29. Speculative way of buying and selling of farm land is an act that needs to be discouraged if the nation and the people really want to prevent the disastrous effect of speculative booms in land values.  This paper examines the graduated farm land transfer stamp tax as well as what can be done to discourage the speculative purchase and sale of farmland. This paper explores the history and previous agreement that the value and the selling price of farm land ought to be stabilized. This paper looks into how far this has been accomplished and the effect of land transfer stamp tax.

•    The Stamp Tax Exemption in Chapter 11 Cases, Maloy, R. H. (2002). Rutgers Bankr. LJ, 1, 1. This paper discusses some interesting litigation that have arisen in the provision of the Bankruptcy code’s chapter 11 and chapter 1146. It presents an examination of the stamp tax exemption in chapter 11 cases. This paper highlights how section 77B of the Bankruptcy Act that was enacted in 1898 provides exemptions from specific federal stamp taxes. These exemptions are largely found in the issuance of stock and bonds as well as on the conveyance of realty. This paper hence studies the provisions of stamp tax exemption in chapter 11 cases of the Bankruptcy Act of 1898.

•    The Asymmetric Effects of Stamp Tax on the Market Volatility——the theoretical and empirical study based on behavioral finance model [J], Liu, H., & Yu, Y. (2007). Taxation Research, 11, 004. This paper examines the asymmetric effects of stamp tax on the market volatility. Asymmetric effects describe the positive and negative shocks to money supply. The asymmetric effects of stamp tax on the market volatility are studied both theoretically and empirically. This paper base the theoretical and empirical study of asymmetric effects on the behavioral finance model including rational traders and noise traders. This study finds out that there are two kinds of asymmetric effects of stamp tax on market volatility. These two kinds of effects are explained in this paper.

•    On Stamp Tax System of Security Exchange in China [J], Junying, L. (2008). Finance & Economics of Xinjiang, 4, 012. This paper studies the stamp security exchange in China and its roles in obtaining financial income and how security market adjust to stamp tax. Despite that the stamp security exchange in China plays vital roles, there are still specific deficiencies attributed to it. This paper investigates the identified deficiencies of stamp tax of security exchange. The deficiencies include gathering tax without legitimate basis, taxing buyers and sellers at the same rates, inadequate adjustment, function dislocation, among others. This paper suggests that in order to make the system perform effectively, there is need for a reform.

•    On System Optimization of the Rate-Changing of Stamp Tax on Stock Trading [J], Wei-xing, C. H. E. N. (2007). Journal of Guangdong University of Business Studies, 5, 009. This paper studies system optimization of the rate-changing of stamp tax on stock trading. It examines how the authorities control gambling behaviors in the stock market using channels of improving the rate of stamp tax. This paper however finds out that this practice of improving the rate of stamp tax needs empirical evidence. It examines how a good optimizing system can be used to achieve adjustment in the rates of stamp tax as well as progressive taxation.

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