BRUSSELS, Oct 7 (Reuters) - A new European Union tax on bank profits and remuneration could raise as much as 25 billion euros ($34.97 billion) for cash-strapped governments to repair their economies, the bloc's executive body said on Thursday.
The European Commission, with political backing from the bloc's leaders, outlined its plans for a Financial Activities Tax (FAT), saying banks were "under taxed" and should contribute to rebuilding economies they damaged.
"I believe that the ideas that the Commission has put forward today are the right ones to ensure that the financial sector makes a fair contribution to the most pressing EU and global challenges," EU Tax Commissioner, Algirdas Semeta said in a statement.
An activities tax was the best solution for making the financial sector more stable, to raise more revenue and tax a sector, which is exempt from value added tax, more fairly.
If a FAT was applied on total remuneration and profit, revenues could top 25 billion euros for a a tax rate of 5 percent, the Commission said. It will now conduct an impact assessment ahead of policy initiatives next year.
EU leaders agreed in June the bloc should lead efforts to set a global approach for introducing systems for levies and taxes on banks.
British Prime Minister David Cameron said on Wednesday the government was "sorting out the banks" to encourage lending to small businesses. A government source said this was a warning to banks that they should boost lending or face a tough response, possibly in the form of a FAT on profits and remuneration.
The International Monetary Fund proposed a FAT earlier this year to the Group of 20 (G20) leading economies but it has yet to be taken up.
The EU has already agreed in principle that banks, and not taxpayers, should pay for rescues in future and is already considering a levy on balance sheets.
But there is no consensus on whether the money from levies should go to a ringfenced rescue fund or to general coffers.
The Commission said any debate on what should be done with the revenue from a transaction tax would come "much later".
"Ultimately, it is for member states to agree on how such revenue would be spent," the executive said.
The European Commission also proposed a financial transaction tax at a very low rate on a global basis, saying it will present it to the upcoming G20 summit in November.
Earlier this year the G20 kicked any idea of a common global transaction tax into the long grass, saying each country could decide how it wanted to make banks pay for their bailouts.
No country is keen on harming their competitiveness and going it alone with a transaction tax, a step European Central Bank President Jean-Claude Trichet said last week was "inadvisable".