12° Nicosia,
18 July, 2024

CBC chief warns: Tax on big profits could hurt economy

Christodoulos Patsalides urges financial reforms and careful planning, instead of windfall tax on banks


The new Governor of the Central Bank of Cyprus (CBC), Christodoulos Patsalides, expressed opposition to a windfall profits tax, which is a tax imposed by governments on companies that have experienced unexpectedly large profits, particularly those considered to be excessive or unfairly gained due to favorable market conditions or external events rather than the company's own efforts.  He emphasized that such measures harm the economy by disrupting tax predictability, crucial for attracting foreign investors to Cyprus.

According to a report by Panayiotis Rougals in today's Oikonomiki, Patsalides called for a transformation in the governance of the CBC, during his first press conference since taking office.  He also advocated for broader powers for the executive members of the bank's board. He highlighted the strong growth of the Cypriot economy and the robust performance of its banks, urging for reforms to strengthen economic resilience.

Patsalides addressed interest rates, noting the slow but positive movement in the gap between lending and deposit rates following the ECB's recent rate cuts. He cautioned commercial banks about the risk of appearing insensitive to social needs and urged them to adopt strategies considering societal sensitivities.

Regarding the acquisition of Hellenic Bank by Greek Eurobank, Patsalides was positive, stating it would enhance competition. On ECB's future moves, he said the institution is keeping its options open, pending upcoming inflation data.

Patsalides stressed the importance of using the current period of economic strength to prepare for potential shocks. He pointed to distortions such as excess liquidity and a preference for floating-rate loans as challenges to be addressed, linking financial literacy to better asset management.

On the topic of a windfall profits tax proposed by AKEL, Patsalides was clear: "Such a tax does not help the economy; it damages it." He warned that ad hoc taxes create economic side effects and stressed the need for predictable tax policies to maintain investor confidence.

He confirmed that the CBC welcomes applications for banking licenses from serious financial technology companies, provided they meet supervisory criteria and have viable plans.

In his remarks, Patsalides underscored the need for the CBC to become more efficient, announcing plans to set up a steering group to discuss governance changes and grant broad powers to the Executive Members of the CBC Board. He emphasized the importance of legally binding changes to the CBC’s governance to ensure effective transformation.

Cyprus  |  economy  |  banks

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