Finance Minister considering windfall tax on Latvian banks

Latvian Finance Minister Arvils Ašeradens (New Unity) said March 15 he is considering proposing a temporary or "windfall" tax on banks' profits to help boost defense spending.

Ašeradens said that he intends to raise the matter with coalition partners on Monday next week in a brief telephone conversation, according to a Latvian Radio report, which did not quote him directly.

Lithuania is already working on the introduction of a similar windfall tax, as reported last month by our colleagues at LRT English. Lithuania’s Finance Ministry has proposed to introduce a two-year 60-percent “solidarity” tax on banking profits, diverting the proceeds to national defense. It would be levied on financial institutions holding deposits of at least 400 million euros and would be charged on net interest income more than 50 percent above the average of the past four years.

The head of the Research Department of the Bank of Latvia, Kārlis Vilerts, said that for two or three years there have been negotiations with commercial banks about ways they can support wider society.

"In Latvia, we are trying to follow a slightly different path: to make deposit conditions more favorable for Latvian companies and households. Of course, if the situation does not change, if lending continues to be weak, rates are high against the background of the Eurozone and deposit rates are low, then the politicians will in the end consider the need for such a tax in the case of Latvia as well, following the example of Lithuania," said Vilerts.

However, perhaps unsurprisingly central bank considers the taxation of commercial banks' profits to be an extreme step that might frighten other commercial players if it looked like taxes were suddenly being sprung on unsuspecting banks. 

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