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Slovakia taxes banks

ROBERT Fico and his opposition Smer party had wanted a special tax on banks operating in Slovakia to be levied at a rate of 0.7 percent of their liabilities and had gone so far as to make this one of the party’s flagship policies. As it turns out, a special bank levy at 0.4 percent has now been passed by parliament – it was approved by MPs on October 20 – but at the initiative of the outgoing centre-right government.

Igor Vida (Source: TASR)

ROBERT Fico and his opposition Smer party had wanted a special tax on banks operating in Slovakia to be levied at a rate of 0.7 percent of their liabilities and had gone so far as to make this one of the party’s flagship policies. As it turns out, a special bank levy at 0.4 percent has now been passed by parliament – it was approved by MPs on October 20 – but at the initiative of the outgoing centre-right government.

The rate was set at 0.4 percent of banks’ liabilities after equity capital and deposits covered under Slovakia’s deposit protection system are deducted.

While the Finance Ministry says that the bank levy will provide a “healthy bite” for the state coffers, the Slovak Banking Association (SBA) says the measure represents a potential threat to the stability of the country’s banking sector.

The ministry expects the levy to channel an extra €80 million to the state budget. If the state had gone for the Smer version of the tax at 0.7 percent then total revenues, at least according to Smer, would have been €189 million, the SITA newswire reported.

The Finance Ministry said that the rate proposed by Smer could have disturbed the business environment in Slovakia. But the banks say that even the government’s lower rate will have the same effect.

“Slovakia did not have to rescue its banking sector, which was one of the reasons for instituting the levies in some other EU countries,” the SBA wrote in an earlier response to the levy plan, adding that there is currently no reason for Slovakia to implement the tax.

The SBA also argued that the higher rate might result in more expensive products and services for clients, while the president of the SBA, Igor Vida, on October 18 called it a short-sighted step. Vida claimed that the 0.4-percent rate would make it the second highest such tax in the European Union, and that if the Smer proposal were adopted the tax would be the highest in the EU, the TASR newswire reported.

Originally, the Finance Ministry proposed a 0.2-percent special levy for next year, while the SBA lobbied for a rate of 0.02 percent, arguing that this was the level set in Germany, a country that was forced to shore up its banks during the turmoil in the financial markets.

The SBA also proposed that the central bank, the National Bank of Slovakia, be given responsibility for setting the rate in agreement with the Finance Ministry after taking into account the forecast financial situation.

The Finance Ministry said earlier in October that even though the rate is higher than in other EU countries which have imposed a similar tax, the levy would take only 7.9 percent of the expected profits of the banking sector. The ministry argued that the proposed rate would be low enough to not cause negative impacts, such as banks passing the cost of the levy on to customers through higher fees, SITA wrote.

Banks in Slovakia paid €266.90 million in direct and indirect taxes to the state in 2010, the SBA reported on April 26, of which €173.40 million was in the form of income tax and the rest from indirect taxes and VAT.

When arguing for a higher rate, Smer, which considers itself the originator of the bank tax idea, also proposed that the state simultaneously prohibit banks from increasing their fees. The government, however, did not endorse this proposal from Smer.


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