Debate over bank surplus tax idea in Latvia

Whether and in what form to introduce a bank surplus tax is a matter of divided opinion among the political forces forming the coalition. There is consensus that budget revenues can be raised through the banking sector, but diverging views on the form, Latvian Radio reports August 19.

In June, the coalition again floated the idea of introducing a super-profits tax on credit institutions for two years - 2025 and 2026. The potential benefits for the state budget would be €100 million.

Viktors Valainis, Minister of Economics (Greens and Farmers Union) has suggested that the excess profits tax should be set individually for banks. If a bank increases its lending, the tax paid could be reclaimed. Andris Šuvajevs, deputy head of the Saeima Budget Commission and head of the Progressives' Saeima faction, sees bureaucratic risks in such an approach and advocates the introduction of an all-profits tax on banks without reservations.

"I think we often complicate issues in Latvian politics by trying to reach a better solution with good intentions, but I think the best solution would be a clear, direct tax on excess profits, from which we can objectively set the amount to be collected by the state budget. This, in my view, will in itself encourage lending," Šuvajevs said.

"I am afraid that the introduction of some additional conditions could encourage premises or attempts to "round up" lending figures, which would only create additional bureaucracy on the part of the state to check whether the reported lending levels correspond to reality. So my view would be to look at a clear, clean excess profits tax with no additional conditions."

The financial sector is opposed to the idea of a super-profits tax, and Jānis Reirs, the head of the Saeima Budget Committee, is also skeptical.

He foresees a wide-ranging discussion in the commission on possible options for how to channel a larger share of banks' income into the state budget. He believes that a debatable idea would be to review the corporate income tax liability of banks.

"The tax system should not be one that penalizes people or companies. We are supposedly talking about bank super-profits. The tax system should be supportive. In this case, we are not charging corporation tax to the banks, but we want to charge excess profits tax. That seems a little wrong, so perhaps, if additional funds are needed, we should take corporation tax from the financial institutions this year, which is what financial institutions around the world pay. So maybe it is better to take this tax rather than make them pay excess profits tax," Reirs said.

In Latvia, the discussion on the introduction of a bank surplus tax started last year.

A discussion in the coalition on additional measures and the possible introduction of a bank surplus tax is expected this week or next week. 

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