Akkermann: Banks' advance income tax could be 16 percent

Finance Committee Chair Annely Akkermann (Reform).
Finance Committee Chair Annely Akkermann (Reform). Source: Priit Mürk/ERR

On Friday, the Finance Committee of the Riigikogu discussed the more than one thousand amendments to the proposed tax reforms. Annely Akkermann (Reform), the chair of the committee, said that banks could be subject to a 22 percent income tax, of which the advance would be 16 percent.

Akkermann said that the debate in the committee was constructive and many proposals were reviewed in an hour and a half; for instance, the first 150 proposals concerned the excise tax on a single gambling location."

"All political factions were represented and their representatives presented the amendments of their colleagues," she said. "All amendments were reviewed today, but no procedural decisions were made because the opposition wants all 1,023 amendments to be sent to the Riigikogu and voted on in second reading with a 10-minute interval between each. The Riigikogu does not have this kind of time, so either an agreement between political factions or a vote of confidence is would be necessary," Akkermann said.

Akkermann said that there is a possibility of reaching a consensus on some matters, such as excise tax adjustments as there are no fundamental disagreements there.

On the amendment of the turnover and income tax laws, there are more fundamental disagreements.

Akkermann said that consensus is always possible and expects that the party leaders will arrive at one. "However, if votes of confidence are required and no agreement is reached, all four of these tax reform bills will likely be introduced through a vote of confidence," she said.

As part of an agreement, the Reform Party would like to increase the VAT tax rate on hotels to approximately 13 percent and on the press from 5 percent to 9 percent.

Finding a compromise on raising the income tax on banks is also important for the party. "Currently, the government has proposed increasing the income tax levied on bank profits from 14 percent to 22 percent. But it would be preferable for our own local banks, if they were subject to the same regulation as other companies in Estonia under the Income Tax Act, namely the payment of income tax on dividends. Foreign bank representatives, namely Swedish bank representatives, have not taken such a stance and said that there will be no modifications to their dividend policy," she said.

Akkermann said that no one is opposed to an increase in income tax for banks, but an agreement is being sought on when this taxation will occur, which is either on an advance basis or when profits are withdrawn, comparably to other companies.

According to her, a compromise could be reached in which the advance income tax would increase to 16 percent and to 22 percent on the withdrawal of dividends, with the already paid advance income tax deducted. "So I would draw the line somewhere in the middle," she said.

Akkermann said that it would be crucial to preserve the advance tranche because banks are generating substantial profits and the government needs to increase revenues; however, there is "another concern as to why to leave dividends for the time being: it would supports our domestic banks, which are expanding more rapidly and are unwilling to pay dividends in advance."

Within the coalition, different possibilities and compromises are being discussed and no one has taken a resolute stance, Akkermann said. "The question remains whether we will be able to reach an agreement with the opposition."

Akkermann could not anticipate the budgetary impact of a lower increase in the advance bank tax at this time.

The commission plans to make procedural decisions regarding the tax changes by the following Tuesday at the latest.


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Editor: Barbara Oja, Kristina Kersa

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