Banks in Lithuania report a combined €1 billion in profits, leading to demands to extend the windfall tax
Lithuania's ruling Nemunas Dawn party leader, Remigijus Zemaitaitis, is preparing legislation to extend the "solidarity tax" in the upcoming fiscal package. However, it's important to clarify that this tax is not a distinct category specifically imposed on banks in Lithuania. Instead, it is a levy on windfall profits in the banking sector, introduced after the European Central Bank's interest rate hikes.
The solidarity tax proceeds have been used for military infrastructure. This tax extension proposal has sparked debate, with Prime Minister Gintautas Paluckas criticising banks for doing too little to support small businesses. Local mayors have also called on banks to improve accessibility for residents by opening more branches and installing additional ATMs.
The banking sector opposes the extension of the solidarity tax. Banks argue that digital banking has reduced the need for physical branches, and they have posted a record profit of €1 billion last year. Kestutis Kupsys, a member of the European Economic and Social Committee, criticised banks for profiting at the expense of consumers, estimating that each of Lithuania's 1.2 million households effectively contributed €800 to bank profits.
Lithuania leads the EU in rejecting loan applications from small enterprises. This, coupled with the criticism, has led to a complaint from Lithuanian banks with the European Commission, arguing that the tax distorts competition.
Despite the controversy, banks have contributed approximately €600 million towards national defence over the full three-year term of the solidarity tax. Eivile Cipkute, Bank Association President, acknowledged that 2023 profits were slightly higher due to increased deposits and loan volumes.
However, the effectiveness of the solidarity tax has been questioned by PM Paluckas, as it doesn't always apply due to only being triggered by exceptionally high profits. Keestutis Kupsys also warned that as long as banks can earn interest by depositing funds with the European Central Bank, they will have little incentive to compete for retail customers or increase lending.
In summary, while the solidarity tax is not a current Lithuanian tax policy or issue specific to banks, it has sparked debate and controversy. The extension of the tax is being proposed, but the banking sector strongly opposes it. The focus on digital banking and the questionable effectiveness of the tax have added to the controversy surrounding this issue.
The proposal to extend the solidarity tax has provoked discussions between different sectors, including the business community, politics, and the general news, given its implications for Lithuania's financial landscape. Critics, such as Prime Minister Gintautas Paluckas and local mayors, argue that banks should increase support for small businesses and improve accessibility, while the banking sector disputes the need for a tax extension due to concerns about competition distortion and the questionable effectiveness of the tax.
