Latvia's 2025 budget could receive 96 mln euros in excess profit tax from banks - Finance Ministry
RIGA. Sept 19 (Interfax/BNS) - The tax on the excess profits of banks, the so-called "solidarity contribution", which is planned to be levied in Latvia in 2025-2027, should provide budget revenues in these years at 96 million euros, 80 million euros, and 80 million euros, respectively, Latvia's Finance Ministry said.
The ministry has continued developing the model of "solidarity contribution" in order to find additional funds for the state within the context of "increased security risks".
The government plans on Thursday to consider the matter of implementing the tax, along with proposals to ensure funding for priority measures in 2025-2028.
The Finance Ministry said that net interest income is planned to be the basis for calculating the "solidarity contribution", namely the difference between interest income and interest expenses of the country's lending institutions.
Latvia is expected to implement the system already in force in Lithuania as the basis. The rate of the new tax will be 60% of the net interest income of the lending institutions. This income currently significantly exceeds the indicators observed before the sharp increase in the Euribor rate that has resulted in the lending institutions receiving large profits not directly related to economic activity, the ministry said.
The model for collecting the tax also envisages preferences that would be tied to the rate of growth in lending. The preferences for a lending institution could total 100% of the tax amount when lending volumes increase significantly, the Finance Ministry said.
As reported earlier, the Economy Ministry and the Central Bank of Latvia propose implementing a tax on the excess profits of the country's banks in order to finance expenses for security. The authorities base the proposal on the fact that the banks are actively boosting profits on the back of the European Central Bank having hiked interest rates to curb sharp growth in inflation rather than owing to an aggressive lending policy on the part of the banks.
The Economy Ministry believes that the excess profit tax could be introduced individually for each bank. The amount paid in excess profit tax would be returned to a bank if it meets the requirements for increasing lending. Small banks, which generally increase their respective loan portfolios more actively than large systemic banks, could be exempt from paying the tax.
Latvia's neighbor, Lithuania, has imposed an excess profit tax on domestic banks since 2023. Banks operating in Lithuania paid over 250 million euros in excess profit tax last year, and around 220 million euros could be remitted this year. The tax was initially limited to 2023-2024, though it was recently extended to 2025. The Bank of Lithuania calculates that revenues from the tax could total 50-70 million euros next year.
Estonia is also discussing the topic of implementing a similar tax.
