Modeling of the consequences of the draft additional taxation of banks shows the annual impact of the additional tax on the entire Romanian banking sector of 1.1 billion lei, which is 1.5% of total capital, according to the National Bank, in a stability report published on Wednesday.

The expected tax impact is equivalent to 1.3% of bank capital in Italy, 1.7% of bank capital in Slovenia or 0.6% of bank capital in Spain.

While the annual impact of this measure on Romania’s equity is comparable, the permanent nature of the national tax makes it more onerous given the uncertain outlook for some banks’ ability to generate profits in the future.

In addition, the NBR shows that the application of the additional bank tax also targets loss-making banks, which hold 0.4 percent of banking assets.

There are also a number of elements and consequences of this taxation in terms of financial stability, says the Central Bank.

Fiscal unpredictability will increase, a situation common in the banking sector over the past decade, with possible negative consequences for the cost and volume of financial intermediation (the lowest in the EU).

It should be noted that, in contrast to other EU countries, the excessive taxation of banks in Romania is not justified from the point of view of public expenditure to support the banking sector, ensuring a sufficient level of capital coming exclusively from private sources.

The permanent nature of the levy is at odds with other similar European initiatives which aim to introduce a fee for a limited period of time and with a specific purpose. At the same time, any additional taxation of banks in Romania in the medium term should be commensurate with their ability to generate profits.

In the context of fiscal pressure, a number of state bodies in some EU countries have introduced bank taxes: Italy, Spain, Lithuania and recently Slovenia.

The ECB has publicly announced that measures taken by the governments of Italy and Spain to tax banks could have negative consequences for the banking sector as well as for the economy as a whole, given that such initiatives make it difficult to build additional capital reserves. by reducing the profit available for inclusion in the capital, reducing the resilience of banks to shocks.

According to the legislation of the countries that initiate bank additional commissions, their application is limited in time and has specific goals.

In the case of Italy, a recent amendment allows Italian banks to pay the tax flexibly (with capital increases as an alternative). In a situation where banks will still pay the tax, the funds will be directed to support part of the borrowers to pay mortgage payments and reduce some taxes.

This tax is a one-time tax only for the 2023 financial year and does not exceed 0.1 percent of the value of the assets according to the financial statements for the previous accounting year. The measure to limit the tax was adopted as a result of the negative impact on the share price of Italian banks in the capital market after the initial announcement of the measure, which did not involve a limit.

in Lithuania, the purpose of the tax is to cover military expenses. In May 2023, an exceptional income tax for the banking sector was approved for 2023 and 2024 (also temporary). The 60 percent tax applies to the amount of net interest income that is 50 percent more than the average of the previous four years.

In Spain, at the end of 2022, it was decided to introduce a temporary tax on banks that received gross income from interest, taxes and commissions in 2019 of more than 800 million euros. This measure provides for the application of the tax for the fiscal years related to the period 2022-2023, after which the possibility of its extension for an indefinite period will be analyzed. Therefore, in 2023-2024, a tax of 4.8 percent of the net income from interest, taxes and fees relating to the financial years of the previous years will be levied.

In the case of Slovenia, it was decided to introduce a tax of 0.2 percent of total assets (but not more than 30 percent of net annual profit) for the period 2023-2027. However, banks have the opportunity to reduce the amount of tax due to contributions to a fund designed to mitigate the consequences of the floods that hit the country in August 2023.

According to these European initiatives, the Romanian authorities adopted Law no. 296/26 October 2023 on some fiscal and budgetary measures to ensure the financial stability of Romania in the long term, which provides for additional taxation of the banking sector at the rate of 2 percent of turnover in 2024 and 2025, after which the share will decrease to 1 percent from 2026. The additional tax will be levied regardless of whether the bank makes a profit or not, as it is open-ended.