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ECB Warns Poland On New Bank Tax

by Ulrika Lomas,, Brussels

15 January 2016

The European Central Bank (ECB) has warned the Polish Government that its proposed bank tax could have negative consequences for the provision of credit and financial stability and should be analyzed thoroughly before being introduced.

The draft law imposes an obligation on certain financial and insurance institutions to pay a special monthly levy of 0.0366 percent on the value of an institution's assets, subject to certain exemptions, thresholds, and deductions. It is intended that the tax will apply to the following taxpayers: domestic banks; branches of foreign banks; branches of union credit institutions, cooperative savings and loan unions; domestic insurers; domestic reinsurers; branches of foreign insurers and reinsurers; and consumer credit institutions.

The tax is aimed at creating an additional source of funding for public expenditure, in particular social security, as set out in the Polish Government's spending program.

However, in an opinion on the draft law requested by the Polish Parliament on December 15, 2015, and published by the ECB on January 12, the bank warned that the proposed tax's structure "may give financial institutions an incentive to change their risk profile by restructuring their portfolios in favor of riskier products, by making use of off-balance sheet activities and/or by transferring their assets abroad."

The ECB observed that where EU member states have introduced specific banking sector taxes, they have done so with the aim of absorbing the cost arising from a potential bank failure, and to address risks posed by the sector. By contrast, Poland's proposed bank tax "exclusively aims at increasing the amount of funds that are being contributed by the financial sector for financing public expenditure."

The ECB urged the Polish Government that before imposing any ad-hoc bank taxes for general budgetary purposes "a thorough analysis of potential negative consequences for the banking sector" should be conducted to ensure that such taxes do not put at risk financial stability and the provision of credit.

TAGS: tax | law | banking | insurance | budget | social security | Poland | Europe

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