Financial Services

Latvia proposes 20% annual bank tax, adding to pressure on Irish lenders

Move likely to add to pressure on Irish banks amid growing criticism of low deposit rates

Latvia is proposing a 20% tax on bank's profits. Photograph: Barry Batchelor/PA

Aaron Eglitis
Mon Aug 14 2023 - 12:09

Latvia may raise about €140 million in additional tax revenue next year under a proposal that would force banks to pay taxes annually instead of when they pay out dividends.

The proposal is part of a package of potential tax changes ahead of 2024 budget talks, and was chosen over a windfall tax on lenders’ profits, the nation’s finance ministry said on Monday. It is likely to add to pressure on Ireland’s banks which are facing heavy criticism for not increasing rates for borrowers despite the jump in rates overall.

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The Baltic country’s financial sector, which is dominated by Nordic lenders such as Swedbank and SEB, has seen profit rise as about 95 per cent of housing and non-financial corporate loans have floating rates, boosting banks’ net interest income.

The proposal comes amid a growing wave among governments to tax bank profits which have soared in recent months amid the surge in interest rates. The European Central Bank has hiked rates nine consecutive times since July last year, with its main lending rate now standing at 4.25 per cent compared to zero 13 months ago.

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The Latvian government still needs to discuss the proposal and support is uncertain, finance minister Arvils Aseradens said in an interview on domestic broadcaster TV3. Prime minister Krisjanis Karins said on Friday that he would work on forming a new government that would include parties from the opposition.

In May Lithuanian politicians backed a temporary windfall tax on banks to finance defence spending, while Estonia plans to raise the tax level on banks to 18 per cent from 14 per cent as part of a series of tax measures to narrow the budget deficit. – Bloomberg

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