Slovakia economy briefing: Bank levy may double and continue after 2020 in Slovakia

Posted on by Peter

Weekly Briefing, Vol. 23, No. 2 (SK), November 2019

 

Bank levy may double and continue after 2020 in Slovakia

 

 

Overview

The bank levy, introduced in 2012 to protect the banking sector from possible future crises and to protect the stability of the banking sector in Slovakia, was expected to end by the end of 2020, currently stands at 0.2 percent of the value of banks’ liabilities lowered by the amount of their equity. Instead of ending the levy next year, the government approved its continuation at its November 6th, 2019 session. We note that even though the government approved the continuation and increasing of the rate of the bank levy after 2020, it still needs to be approved by the National Council, where governing coalition has a majority of deputies.

A special bank levy was approved by the government of I. Radičová in 2011 with first payment in 2012. The levy was set at 0.4 percent of the balance sheet, i.e. from all the money the banks managed. Initially, deposits protected by the Deposit Protection Fund and banks’ equity were deducted from this balance sheet amount. However, the rules changed in 2012 by the amendments to the Act no. 384/2011 (see below). The rate remained at 0.4 percent, however, the calculation of the bank levy changed and included also deposits protected by the Deposit Protection Fund. This change approximately doubled the amount of the levy paid by banks (Csernák, 2019).

Act on special levy of selected financial institutions number 384/2011 was adopted by Slovak National Council on October 20th, 2011 and entered into force since January 1st, 2012. The Act regulates: 1. the obligation to pay a special levy (bank levy) by a bank or by a branch of a foreign bank, the amount and method of payment of the levy, and 2. levy management (Act No. 384/2011, 2019). Originally, for the purpose of the Act, the definitions of the basis for the calculation of the levy and the levy administrator were stated within the Act. Regarding the calculation, the basis for the calculation of the levy is the amount of the bank’s total liabilities reported in the balance sheet less the amount of equity, if its value is positive, the value of long-term financial resources provided to the branch of the foreign bank branch and the subordinated debt under special regulation (regulation of the National Bank of Slovakia on own funds of the banks and securities traders and the requirements for own funds of banks and securities traders). As for the levy administrator, Tax office for selected taxpayers is responsible for levy collection; in case the bank does not have its registered office in the competence of the Tax office for selected tax subjects, the levy administrator is the local competent Tax office, in whose jurisdiction the bank has its registered office. The banks are required to pay the levy to the extent and in the manner that is stipulated by the Act meaning that the banks pay the bank levy in four quarterly installments of one quarter of the rate from the basis for the calculation of the levy for the relevant calendar quarter. The levy rate for years 2017 to 2020 was stated at 0.2 percent per year. After 2020, when the bank levy was supposed to be imposed for the last time, the rate of the levy should increase and double from 0.2 percent to 0.4 percent in 2021 and onwards.

Similar bank levies were also introduced in other EU Member States, though there are differences among them as noted by Rabatinová and Kušnírová (2015). Lauermann and Struve (2014) pinpoint mainly following:

  • Base for the levy – the base varies with respect to being based on bank deposits, capital assets, risk-weighted assets, and other calculations with respect to a bank’s balance sheet.
  • Tax deductible contributions – whether a particular bank levy results in a tax deduction are decided on a national level and so differs by jurisdiction.
  • Implementation date – many bank levies have implementation dates from 2011 through to 2014 and beyond, some with phased-in time periods for different components.
  • Branch application – application to branches and subsidiaries of the headquarter/parent bank may differ by levy.

 

According to Rabatinová and Kušnírová (2015), Slovakia has introduced the bank levy in 2012 (with the aforementioned Act approved by the National Council in 2011) as the twelfth country of the European Union with the Slovak banks paying the highest amount of the bank levy in proportion to the amount of assets from all EU member countries. After the legal adjustment of the rate of the bank levy in 2015 (from 0.4 percent to 0.2 percent), Slovakia still had the highest levy in the euro area (compared to Germany more than three times higher). Since 2015, the Slovak banks also pay new bank taxes associated with the preparation of the single banking union.

Political parties of the current governing coalition came with the changes to the Act no. 384/2011, which was supposed to impose the bank levy on banks and branches of foreign banks for the last time next year (2020) at 0.2 percent. Leaders of the governing coalition political parties justified the changes (doubling of the levy rate and prolonging the levy after 2020) by various reasons. Leader of the Slovak National Party justified the retention of the special bank levy after 2020 by proposing that banks make a lot of money and can therefore pay higher pensions to pensioners (Csernák, 2019). On the other hand, Slovak Banking Association (SBA) warns that prolonging of the levy may jeopardize the financial stability of the sector (TASR, 2019a). SBA also points out that initially, the levy was to be paid only until the creation of a single European resolution fund, which was established in 2015 for the same purpose of covering the costs of dealing with possible financial crises. Besides, the SBA proposes, in case the changes in the Act on bank levy are approved, that the banking sector will appeal to the Constitutional Court of the Slovak Republic (SBA, 2019a). Also employer representatives and business associations disagree with the approval of the increase and prolongation of the bank levy by the Government of the Slovak Republic and call on the deputies of the National Council of the Slovak Republic to not approve it (SBA, 2019b).

 

Conclusion

Many experts in Slovakia regard the governmental decision on the doubling and prolonging of the bank levy as a step within the pre-election campaign from governing coalition leaders who announce that banks should pay more to the state budget. Experts also consider further levy prolonging as unfair to the banking sector in Slovakia, since the total sum accumulated has been achieved and there is no need to pay the bank levy in the future. Besides, the banks in Slovakia also pay an European levy to the National Resolution Fund with similar aims as the original bank levy (i.e. protection of banks against problems in case of adverse economic development). As Csernák (2019) notes, some of the EU member states cancelled their own bank levies after the creation of European levy. As TASR (2019b) informs, the National Bank of Slovakia calculated that while the current 0.2 percent levy accounted for approximately 16% of banks’ profits in 2018, an increased 0.4 percent levy would represent up to 33%. In the event of a decline in profit in crisis years, the levy may constitute a substantial part of the profit.

We note however, that even though the government approved the changes in the bank levy on November 6th, 2019, the legislative changes must still be approved by the National Council in order for changes to enter into force since January 2020. We also note that since the first approval of the bank levy, it has been declared only as a temporary measure with the aim to accumulate EUR 1 billion of funds earmarked to mitigate the impact of future financial crises in the banking sector. This goal has been achieved and there is no other justifiable reason for banks to pay a bank levy after 2020 (SBA, 2019a).

 

References:

  1. Act No. 384/2011. (2019). Available on-line: https://www.zakonypreludi.sk/zz/2011-384.
  2. Csernák, P. (2019). Banky vyššie dôchodky nezaplatia. Musíme si na ne požičať. Available on-line: https://www.etrend.sk/trend-archiv/rok-2019/cislo-43/banky-vyssie-dochodky-nezaplatia-musime-si-na-ne-pozicat.html?split=all.
  3. Lauermann, H.-U. – Struve, K. (2014). Bank levies: A step toward harmonization. In: International Tax Review. Available on-line: https://www.internationaltaxreview.com/article/b1f9jyt9m1zyxp/bank-levies-a-step-toward-harmonisation.
  4. Rabatinová, M. – Kušnírová, J. (2015). The bank levies in Slovakia and in other EU countries. In: Derivat, Vol. 12, No. 4. ISSN 1336-5711.
  5. (2019a). Banky odmietajú platiť odvod. Je protiústavný a bude mať fatálne dôsledky. Available on-line: https://www.sbaonline.sk/sk/novinky/43/banky-odmietaju-platit-odvod-je-protiustavny-a-bude-mat-fatalne-dsledky.
  6. (2019b). Spoločné stanovisko k novele zákona o bankovom odvode. Available on-line: https://www.sbaonline.sk/sk/novinky/44/spolocne-stanovisko-k-novele-zakona-o-bankovom-odvode.
  7. (2019a). Bankový odvod sa zvýši. Podľa Fica prinesie do rozpočtu vyše sto miliónov eur. Available on-line: https://www.etrend.sk/ekonomika/bankovy-odvod-sa-zvysi-podla-fica-prinesie-do-rozpoctu-vyse-sto-milionov-eur.html?itm_site=etrend&itm_template=article&itm_area=article&itm_module=related&itm_position=2.
  8. (2019b). Banky budú ďalej platiť odvod, v budúcom roku sa zdvojnásobí. Available on-line: https://www.etrend.sk/financie/banky-budu-dalej-platit-odvod-v-buducom-roku-sa-zdvojnasobi.html.