Estonian banks reject politicians' new profit tax proposals

Banks in Tallinn.
Banks in Tallinn. Source: Siim Lõvi /ERR

Banks have pushed back on politicians' proposals to impose new taxes on the sector after they reported record profits earlier this month.

Last year's Euribor rate rise has pushed banks' profits to record highs. Several countries have responded by suggesting additional taxes, with Lithuania being one of the most recent.

Estonian politicians are thinking along the same lines, Tuesday's "Aktuaalne kaamera" (AK) reported.

Riigikogu member and former minister Taavi Aas (Center) said profits should be taxed in Estonia rather than being sent back to banks' headquarters in other countries.

"I think it would be right and fair that, if this money is earned here, at least part of it should be contributed to Estonia's development," he said.

Andres Sutt Source: Siim Lõvi /ERR

Other parties agree proposals should be discussed. But, Reform is against the idea.

MP and former IT minister Andres Sutt said the party does not see the need for extraordinary taxation and that competition will rectify the situation.

"[But] There is also the question of banks' social responsibility. How they see the situation and how much they can absorb. There's certainly room for that," he said.

Banks and their representative associations are against new or higher taxes on profits.

"As the Estonian economy and its financing is predominantly based on banks in Estonia, is very bank-centric, and there are few alternative sources of finance, any change in tax policy will affect the whole Estonian economy," Katrin Talihärm,
Estonian Banking Association (Eesti Pangaliit) CEO, told AK.

Taavi Aas Source: Stenbocki maja

The Ministry of Finance's Deputy Secretary General for Financial and Tax Policy Evelyn Liivamägi said tax rises tend to be passed on to consumers.

"Whether we like it or not, tax increases on businesses usually come at a cost to the end consumer one way or another. It doesn't quite go one way. The tax burden is increased and the business takes the whole tax burden at the expense of its profits," she said.

Banks currently pay a rate of 14 percent income tax, which is rather low, AK reported.

"There are still countries in the world with lower tax rates. This is why Estonia has decided [this figure] and how the tax rates are currently set," said Liivamägi.

The Bank of Estonia said, instead of additional taxes, the government could abolish the banks' unique tax system.

SEB and buildings in Tallinn. Source: Siim Lõvi /ERR

"Banks should be motivated to reinvest more of their profits rather than pay out so many dividends. This should be reviewed and changed," said Jaak Tõrs, head of the Bank of Estonia's financial stability department.

Last week, it was announced that Estonian commercial banks' profits had risen by a third to over €500 million.

Additionally, Coop Pank announced a €20 million net profit for 2022.

Profits are expected to continue rising.


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Editor: Barbara Oja, Helen Wright

Source: Aktuaalne kaamera

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