Latvia Considering Taxing Bank Profits
The political forces in the ruling coalition of Latvia are at odds over whether a tax should be imposed on bank profits and, if so, in what form. Everyone agrees that budget revenues can be increased at the expense of the banking sector, but it is impossible to reach an agreement on the form. This information was disseminated by “Radio of Latvia” on August 19.
In June, the coalition again put forward the idea of introducing a tax on the profits of credit institutions for two years (in 2025 and 2026), which, if implemented, would bring a potential benefit to the state budget of 100 million euros.
The proposal of the Minister of Economy, Viktor Valainis, is to impose an individual profit tax on banks. If the bank increases the lending volume, it will be possible to return the paid tax. Andris Shuvaevs, the deputy chairman of the budget commission of the Seimas, sees bureaucratic risks in this approach and unconditionally supports the introduction of a single tax for banks. These decisions will make it harder for foreign investors to have company formation in Latvia.
“I think we often make things artificially complicated by trying to find the best solution and with good intentions. I believe that the best solution would be a clear, direct tax on profits, from which we can objectively determine the amount to contribute to the state budget. This, in my opinion, will contribute to the stimulation of crediting,” Shuvaevs said.
“I am afraid that the introduction of additional conditions may activate the owners of real estate capital or give rise to attempts to “round” lending rates. This, in turn, will lead to efforts to create additional bureaucracy on the part of the state to check the conformity of the announced levels of lending with reality. Therefore, I believe that it is necessary to introduce a clear, clean tax on profits without any additional conditions.”
The financial sector opposes the idea of introducing a capital gains tax. The head of the budget committee of the Seimas, Yanis Reirs, is also skeptical. In his opinion, it is a controversial issue to discuss the corporate income tax liability of banks.
“The tax system should not punish people or companies – the tax system should help them. We don’t charge corporate tax on banks, but we want to tax profits, which is a bit wrong. If more funds are needed, then it is better to take corporate tax from financial institutions, which is paid by financial institutions around the world. “It is better to introduce this tax than to impose a profit tax,” Reirs believes.
Discussions about introducing a tax on bank profits started in Latvia last year. The ruling coalition is planning to discuss the issue and introduce a tax on bank profits for the current or next week.
