RIGA - The Saeima Budget and Finance (Taxation) Committee is planning to introduce a new tax which the banks will have to pay to protect mortgage borrowers.
The Saeima committee proposes including the provision in the draft amendments to the Consumer Rights Protection Law providing for a 50 percent reduction of interest rates on existing mortgage loans for one year.
According to the parliament committee's proposal, the banks would be paying the borrower protection tax on loans secured by a mortgage on immovable property in Latvia.
The mortgagor protection tax would be set at 0.5 percent of the banks' total outstanding mortgage loan balance on the first day of each quarter of the calendar year.
Budget Committee Chairman Janis Reirs (New Unity) explained that the funds raised through the tax would be used to finance a program aimed at supporting the borrowers by covering the disproportionate increase in mortgage rates.
The Saeima committee estimates that the banks will pay around EUR 20 million in the borrower protection tax per quarter, or EUR 80 million per year. According to the committee, these funds will be sufficient to provide mortgage borrowers with a 50 percent discount on consolidated mortgage interest rates.
If a credit institution voluntarily reduces its interest rate by 50 percent, it will be exempt from the borrower protection tax.
Reirs also said at the meeting of the Budget and Finance (Taxation) Committee that Development Finance Institution Altum (Altum) must be transformed into a bank to "create competition to the bank monopoly and develop lending".
The draft amendments passed the first reading in the Saeima on October 12. On Tuesday, October 24, the Budget Committee only reviewed proposals submitted ahead of the second reading. A vote on these proposals is due to take place in a week.
A year later, the Budget and Finance (Taxation) Committee will assess whether the measure has been effective and whether to extend it for another year.
The support measure will apply to borrowers with a maximum loan balance of no more than EUR 250,000.
Saeima Budget and Finance Committee Chairman Janis Reirs (New Unity) at the beginning of August told LETA that banks' practice of applying EURIBOR interest rate to mortgages was unjustified.
Reirs' opinion was strongly criticized by banks' representatives, who questioned the former finance minister's understanding of how the financial system works.