Indefinite extension of Lithuania's solidarity levy would mean new bank tax – industry rep

  • 2024-05-20
  • BNS/TBT Staff

VILNIUS – An indefinite extension of the so-called solidarity levy on banks, as proposed by the parliamentary opposition, would mean a new tax on banks, Eivile Cipkute, president of the Lithuanian Banks' Association (LBA), said on Monday

"It is evident that only the (banking) sector is being taxed and more than once. There is an additional corporate tax and now there are new discussions on making the temporary (tax) permanent, which we view as a new tax because it would have to be approved by the European Central Bank, a completely new process," she told LRT Radio.

Cipkute warned that annual discussions about tax changes make Lithuania's investment environment unpredictable. 

"It is becoming a trend that every year we have a discussion about extending a tax or imposing a new tax, and the investment environment is becoming unpredictable for investors, who see this as political instability," she said. 

Simonas Krepsta, a member of the Lithuanian central bank's board, says the current solidarity tax model would no longer generate additional revenue in 2026-2027.

"If there were a political debate on whether to tax banks, the tax design would probably have to be fundamentally changed or other solutions sought," he told the radio station.

Extending the temporary bank solidarity levy for another year "without changing the parameters" could raise around 50 million to 70 million euros in extra budget revenue, according to Krepsta.

Mindaugas Linge, chairman of the parliamentary Committee on Budget and Finance, says that while a discussion about extending the solidarity tax can take place, Lithuania still needs sustainable sources of funding for additional defense financing. 

"It was forecast that the base (of the solidarity levy) would disappear within two years, leaving no potential to collect revenue from the surplus," the MP told LRT Radio, adding that "it possible that the base will remain to some extent when the tax expires in May or June next year."

"The levy was temporary and can continue to be temporary, but its temporary nature can be defined within a certain timeframe," he added.  

Lithuania introduced the windfall tax on banks' net interest income for 2023 and 2024 last year following the European Central Bank's sharp interest rate hikes.

The levy is charged on the part of net interest income that exceeds the average of the previous four years by more than 50 percent.

A group of opposition MPs last Thursday registered a proposal to extend the temporary levy indefinitely.

Banks paid more than 250 million euros in solidarity levy for 2023 and may pay around 220 million euros for 2024, according to the central bank.

Politicians want to boost defense funding to 3 percent of GDP to speed up the establishment of a military division, to host a German brigade, which is expected to be stationed in the country by 2027, and to prepare for universal conscription.