(Adds background, government and banking association comments)
VILNIUS, May 9 (Reuters) - Lithuania's parliament on
Tuesday approved a windfall tax on the banking industry's net
interest income for 2023 and 2024 following a sharp rise in
European Central Bank interest rates to tackle soaring
inflation.
The 60% levy on the part of net interest income that exceeds
the average of the previous four years by 50% is estimated to
raise 410 million euros ($451 million) for the government's
budget, and will be used to boost the military.
Before the levy, which was originally proposed by the
Lithuanian central bank, the Baltic country had expected to
spend 1.9 billion euros on defence in 2023, or 2.52% of gross
domestic product.
A NATO member, Lithuania borders Russia as well as Russian
ally Belarus.
Spain in December approved a temporary windfall tax on
banks, charging 4.8% on net interest income and net commissions
above a threshold of 800 million euros.
Lithuania's government argued its banks earn "economic rent"
due to rising interest rates, with profits forecast to be twice
as high in 2023 as last year.
"Rent in the economy should be treated as a distorting and
unjust phenomenon," it said in a submission to the parliament.
"It is appropriate to redistribute the large unplanned increase
in bank profits by applying fiscal measures, thereby correcting
market imperfections."
The European Central Bank said in early April that imposing
a financial contribution on Lithuanian banks "could have
negative economic effects by making credit institutions less
resilient to economic shocks".
Two Swedish-owned groups hold over 50% of Lithuania's
banking assets: Swedbank , whose 2022 profits in
Lithuania increased by 64% to 148 million euros, and SEB , whose profits were up 49% to 172 million euros.
British fintech firm Revolut owns the third-largest bank,
with about one-fifth of total assets, serving the European Union
and European Economic Area, with Lithuanian residents accounting
for less than 2% of the customer base.
The Lithuanian Banking Association said the legislation was
drafted without a proper impact analysis and without considering
banks' suggestions.
"It's really sad for the largest and most loyal investors
(the banks) that yet another chaotic, anti-Constitutional idea
to tax the sector is destroying the idea that Lithuania is a
reliable state, with a transparent and predictable tax
environment", it said in a statement.
($1 = 0.9084 euros)
(Reporting by Andrius Sytas in Vilnius
Editing by Terje Solsvik and Mark Potter)
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