Finance Ministry presents proposals to change bank asset tax in OUG 114

The Finance Ministry has presented its latest version of the tax on bank assets, introduced through OUG 114, in a meeting with banking sector representatives on Wednesday, profit.ro reports.

A series of assets will be tax exempt, tax rates will be reduced and banks can benefit from an additional lowering of the tax burden. Furthermore, banks who record losses will not be taxed, while those posting profits will not be required to pay more than their annual profits.

In this latest version by the Finance Ministry, the bank asset tax rate would drop from 1.2 to 0.2 percent per year for banks with a market share below 1 percent and to 0.4 percent per year for those with bigger market shares.

Since bank assets are mostly concentrated around bigger banks, the system-wide asset tax will be around 0.37-0.38 percent of assets – one of the largest in Europe.

In the new version, the taxable base would exclude state bonds, loans to public administrations, state guaranteed loans (such as Prima Casa), inter-bank loans and the minimum bank reserve held at the National Bank.

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Banks that post losses will be exempt from the tax, as the BNR had warned that taxing these banks would mean a direct tax on capital by the state. Furthermore, the total tax for profitable banks will be capped at the level of the profit – in other words, the state can take all of the banks’ profits. Bankers had proposed a doubling of the regular 16 percent tax rate in Romania to 32 percent, as long as the asset tax was removed.

Some banks could avoid paying the asset tax altogether, but if they meet to conditions: increasing crediting by 8 percent or more per year (tax is cut in half) or cutting the net margin (the difference between credit interest rates and RON deposits interest rates) by 8 percent – this would also halve the asset tax, but is much more difficult to achieve.

The Ministry also introduces a penalty system for those that don’t increase crediting or who increase their margins. Banks say that this system could lead to some banks paying a higher tax even if they initially increase crediting towards riskier areas and then accumulate non-performing loans that drag down their loan volumes.

Bankers also demanded that the tax be paid annually, as operational costs with fiscal reporting are high and would be even higher if payment were to remain semestrial.

The impact of the new version of the bank asset tax is expected to reach about RON 1 billion per year, compared to BNR’s calculations for the current version, which would have been around RON 5.4 billion.

Banks were asked to come up with new proposals by Thursday, when a new meeting is scheduled. The Finance minister had stated that the government would discuss the emergency ordinance to amend OUG 114 in a meeting next week.