Banking Association chief: bank tax would reduce capacity to boost growth

Heads of Estonian banks at the prime minister's office.
Heads of Estonian banks at the prime minister's office. Source: Priit Mürk/ERR

Olavi Lepp, head of the Estonian Banking Association and CEO of Swedbank's Estonian branch, said that banks would be able to cope with the increase in advance income tax, which has already been decided on. However, Lepp added that an additional bank tax would harm the Estonian economy.

Prime Minister Kaja Kallas (Reform) met with representatives of Estonian banks on Tuesday to discuss a possible bank tax.

"The banks went into the meeting with the message that banks are already taxed and that there is a bank tax in the form of an advance income tax. We pay it every quarter. In fact, we went to compare perceptions, between the way politicians see us and how we view the situation," Lepp told ERR after the meeting with the prime minister.

"I think it was a good meeting. We coming to be pretty much on the same page about how things should be. However, there is more than one partner in the coalition, so there was an agreement that the politicians still have to discuss these things among themselves," Lepp said.

The idea of a bank tax has been put forward by Lauri Läänemets, leader of the Social Democratic Party (SDE). However, the SDE's coalition partners Eesti 200 and the Reform Party have been skeptical and generally unsupportive of the suggestion.

Olavi Lepp did not want to comment on whether banks would be prepared to take on any additional tax. "We had a very good meeting, and I believe the information will come out over the coming days," he said. At the same time, Lepp said banks were not presented with a choice.

Increase in advance income tax

In June, the Riigikogu adopted four draft tax amendments, which, among other things, increased the rate of income tax on banks' advance payments from 14 to 18 percent.

ERR reporter Madis Hindre asked Lepp which option he would prefer: a further increase in the advance income tax or the introduction of a completely new tax.

"I think anything that ensures we have a transparent and predictable tax environment is very important. That's the basic thing that all businesses want, not just banks. So that we know in advance what is going to happen. There may be a lot of expectations, but somewhere there is also the reality of what can be done," said Lepp.

"The purpose of banking is to finance society at large, and if we have less capital, then our ability to finance and promote growth will also be reduced," said Lepp.

Speaking about the impact of the increase in advance income tax, which has already been decided on. Lepp said no one likes the change in tax rates. However, as it was announced well in advance, banks will be able to adapt.

"Certainly, no tax increase is to the liking of those who have to pay more. However, me decisions have been made and hopefully what will set us apart from Lithuania, for example, is that we won't go down the road of being really heavy-handed," Lepp said.

The Lithuanian example

In May this year, Lithuania introduced a temporary, two-year 60 percent tax on the proportion of banks' interest income, over and above 50 percent of its four-year average.  The possible introduction of an extraordinary bank tax has also been discussed in Latvia.

However, according to Lepp, the Lithuanian example demonstrates that both the investment climate and Lithuania's international reputation have been adversely affected.

"When dealing with the investment community, nowadays, it is very difficult to make new foreign investments in Lithuania. It would be really difficult for a new bank to explain to its owner why they want to go to a country where their profits could essentially be confiscated in this way," Lepp said.

However, SDE leader Lauri Läänemets previously described the Lithuanian model as both a responsible and good one.



Follow ERR News on Facebook and Twitter and never miss an update!

Editor: Michael Cole

Hea lugeja, näeme et kasutate vanemat brauseri versiooni või vähelevinud brauserit.

Parema ja terviklikuma kasutajakogemuse tagamiseks soovitame alla laadida uusim versioon mõnest meie toetatud brauserist: