Proposed bank tax runs counter to Constitutions, Lithuania's banking body says

VILNIUS – The proposal to tax assets over 300 million euros of banks, credit unions and other loan-issuing companies, the Seimas of Lithuania accepted for deliberation last week, runs counter to the country's Constitution, the Association of Lithuanian Banks says.

The banking body believes such a tax would amount to aid to the state as it would be differentiated based on a financial market participant's scope of activity. Such aid, the body says, has not been coordinated with the European Commission.

Submitted to the Seimas secretariat and the parliamentary Committee on Budget and Finance, the ALB statement underlines that the planned tax is flawed as it would apply only to part of financial market participants.

"Consumer loans are issued not only by banks or credit unions but also unlicensed credit providers with assets below the 300 million euro tax base stimulated by the bill. Therefore, unlicensed consumer loan issuers will in fact be exempt from the tax despite their loans being considerably more expensive than those of licensed consumer loan issuers," the association said.

According to the ALB, that will allow unlicensed credit providers with no right to attract deposits and other repayable funds from non-professional market participants to gain a competitive advantage over other market participants.

The proposed tax will not only obstruct new market participants from entering the country but will also create additional barriers from them to provide services in Lithuania. Therefore, the ALB believes that such a tax "would lead to negative consequences that will outbalance the additional budget revenue."

"Taking this into account, (…) the bill cannot be deliberated and adopted together with the 2020 budget law package," the banking body believes.

The banking tax bill was put before the Seimas on Thursday, and planned revenue from this tax are already included into the 2020 state budget bill.

The budget is estimated to gain 50-60 million euros in revenue from the proposed tax.