Ulster Bank and KBC Ireland to escape bank levy, cutting revenue by 42%

Budget 2022: Future of scheme to be reviewed next year

The Irish banking levy is set to be extended by a year to the end of 2022, though Ulster Bank and KBC Bank Ireland will escape having to make payments as they accelerate their exit from the market, Minister for Finance Paschal Donohoe said on Tuesday.

Speaking as he unveiled next year's budget in the Dáil, Mr Donohoe said that the levy on AIB, Bank of Ireland and Permanent TSB will remain at this year's level in 2022, at a combined charge of €87 million. That means that total exchequer revenues from the scheme will drop 42 per cent on the annual €150 million targeted and collected under the levy in recent years.

The Minister said that the future of the levy, which was introduced in 2014 for two years before being extended to the end of 2021 and, again, in Budget 2022, will be assessed next year.

The review comes weeks after it was reported that the UK government is planning to lower an 8 per cent surcharge that it has applied to bank profits since the start of 2016. UK chancellor of the exchequer Rishi Sunak will unveil his next budget in two weeks’ time. The general UK corporation tax is set to rise from 19 per cent to 25 per cent in 2023.


‘Crude measure’

“We await the terms of reference of the review of the bank levy. The government will be mindful of the exits of Ulster Bank and KBC Bank Ireland and how the levy is an extremely crude measure,” said Davy analyst Diarmaid Sheridan.

Both overseas-owned banks announced earlier this year that they were planning to exit the market. The three remaining banks are in talks to acquire much of their departing rivals’ loan books.

The Minister’s decision to lower the levy target from €150 million will avoid the remaining three banks facing higher levy bills at a time when the Government is seeking to lower its stakes in the bailed-out lenders. The State has sold 3 percentage points of its Bank of Ireland stake in the past three months, reducing its holding to below 11 per cent. AIB also received shareholder approval earlier this year for a potential buyback of almost 5 points of taxpayers’ 71 per cent stake in the bank.

Tax bills

An extension of the levy beyond this year has largely been expected by the banks and industry analysts, as the sector has been able to use multibillion euro losses racked up during the financial crisis to reduce their tax bills.

AIB, Bank of Ireland and Permanent TSB (PTSB) have utilised almost €500 million of tax losses against their corporation tax bills between 2017 and 2019, according to Department of Finance figures.

Still, the main banks have had the highest effective tax rates among Irish publicly-quoted companies in recent years. Bank of Ireland’s effective rate was 30.5 per cent and 19 per cent, respectively, in 2019 and 2018, before the industry slid into loss-making territory during the Covid-19 crisis last year. AIB’s was 27.1 per cent in 2019 and 12.4 per cent for the previous year.

The Government bowed last week to international pressure by agreeing to join 136 other nations in establishing a minimum effective tax rate of 15 per cent for companies with an annual turnover of more than €750 million. The deal will bring an end to the 12.5 per cent headline Irish rate for big companies.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times