Finance Latvia Association does not support the proposed windfall tax on banks, as the association’s representatives informed LETA.
However, while respecting the right of the state to set taxes and duties and assuming that the draft bill will be proposed for consideration by Saeima, Finance Latvia Association in particular emphasizes that the tax should be substantially lower regardless of how large a bank is, a ceiling should be set on the tax, the tax should not hamper lending, the tax should not penalize banks for lending, and the tax should be in force for not more than one year.
The association believes that introduction of a windfall tax on banks is disproportionate, short-sighted and nontransparent. The association claims that such a tax will have negative long-term consequences, hampering growth and sustainability of the Latvian economy and in particular its competitiveness and attractiveness for private investment.
The association repeatedly calls for greater transparency in decision-making. It points out that the introduction of a bank windfall tax has been discussed for almost two years, often without the involvement of the industry players. The association calls for a comprehensive assessment of the impact of the proposed tax on the financial sector as a whole and on each individual bank, as this analysis is currently lacking.
The financial sector opposes introduction of a windfall tax, emphasizes Finance Lavia Association, pointing out that the industry is well aware that the government and Saeima see the tax on banks as a quick and easy solution to long-standing challenges and structural problems in the economy. The association therefore insists that if the tax is introduced, it should be done in a transparent and inclusive process.
According to Finance Latvia Association, the European Central Bank (ECB) said in its negative opinion of April 4, 2023 on the introduction of a solidarity tax in Lithuania that the additional revenues of credit institutions due to higher interest rates should be strictly separated from the general budgetary needs of the government, and using solidarity contributions for general fiscal consolidation purposes should be avoided.
Introduction of a windfall tax on banks in Latvia would essentially oblige the financial sector to cover spending that the government is unable to finance through efficient tax collection, explains Finance Latvia Association. According to statements by several ministers, the financial sector is currently the quickest and easiest source of funds to fill budget gaps, from which the association concludes that the current budgeting process has not been effective.
Finance Latvia Association underlines that countries with clear general operating rules, transparent long-term tax policies and stable cooperation between the public and private sectors are more attractive to both domestic and, in particular, foreign investors.
The association reminds that the ECB and the International Monetary Fund have clearly and unequivocally stated that a windfall tax is not an option and have voiced opposition to such a tax.
As reported, Economics Minister Viktors Valainis (Greens/Farmers) said earlier that the tax on banks’ windfall or exceptionally high profits might serve as a compensatory mechanisms when taxes on labor are lowered. According to Valainis, the goal in such case would be to make the banks increase lending to the economy rather than to ensure higher budget revenue.
Valainis also said that Latvia’s small banks could be exempted from the windfall tax.
The minister stressed that the windfall tax is not intended to be punishment for the banks and that its purpose is to stimulate lending, so that the money returned to the economy.
The economics minister said that small banks have enough projects to lend to and their loan portfolios are growing at around 8-10 percent a year. Therefore, the large systemic banks, whose loan portfolio is growing by only 3 percent year-on-year, should also step up their lending.
Source: BNS
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