Latvian central bank supports new tax on banks

The Bank of Latvia supports the Ministry of Finance's intention to introduce mandatory payment of corporation tax (UIN) advances to banks at 20% of the previous year's profits, Latvian Television reported on August 14.

Politicians have been discussing the possible introduction of a superprofit tax on banks but were torn whether to take Lithuania for example, where a certain amount of solidarity or profit tax for banks has been applied for a set period, or Estonia, where changes have been made to corporate income tax.

The Latvian Finance Minister has now decided to take the route chosen by Estonians.

“Imposing an obligation on banks, in fact, on the entire financial sector, to pay this tax as an advance payment of 20% of all profits – this allows Latvia to legally collect profits from the operation of this year,” said Finance Minister Arvils Ašeradens (New Unity).

The high income of commercial banks stems from increasing monthly payments by borrowers, not from increasing numbers of borrowers. The Latvian central bank (Bank of Latvia) expects commercial banks to be more concerned about their customers and more involved in the economy. It therefore supports the Ministry of Finance's proposal.

“The banks' profits are really big. But I think this solution would be permanent. And therefore, it would be ensured that banks contribute funds to the State budget each year, regardless of whether they pay dividends or not,” said Mārtiņš Kazāks, president of the Bank of Latvia.

Moreover, such tax changes would allow it to be applied to other sectors if necessary.

This will be one of the issues that could have to be examined by the new government. Ašeradens said out that work would be challenging. At the same time, it should be noted that the political forces currently in opposition agree that such tax changes are necessary.

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