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Tax threatens deposits

  • 2011-12-22
  • From wire reports

VILNIUS - The Association of Lithuanian Banks thinks that the government’s initiative to put taxes on deposit interest will undermine residents’ trust in this form of saving, reports ELTA. There is a great risk that residents will start withdrawing their deposits from banks.

The residents’ deposits account for 78 percent of Lithuanian bank loan stock. Granted the difficult current situation, such a tax would affect the stability of the banking system as the changes of depositor behavior are difficult to predict.

The president of the Association, Dr. Stasys Kropas, says that it is an unwise decision to tax residents’ savings now, given both Lithuanian and global market uncertainties. The tax would be applied to many people for whom deposit interest from Lithuanian banks is the main way of investment.

Kropas points out that bank deposits are the key source for Lithuanian economic capital formation. Taxation will have a negative impact on credit and the government’s abilities to borrow on the domestic market. A deposit interest tax might urge residents to save less for “a rainy day,” this way making them particularly vulnerable to a possible loss of income, for instance, because of economic and financial crisis.