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According to a report by Panayiotis Rougalas in today's 'Oikonomiki', a controversial proposal to introduce a 5% tax on bank profits in Cyprus is racing against time to be debated in Parliament before the Christmas recess. The bill, spearheaded by the AKEL party, seeks to generate revenue in order to give back to the society that they need from banks' net interest income but has encountered significant pushback from the banking sector and government officials.
Proposal Adjusted to Overcome Legal Hurdles
Originally proposed as part of a plan to fund a Social Solidarity Fund for vulnerable households, the law was revised after legal concerns about its constitutionality. AKEL insists the tax would not harm banks or deter investors, countering claims by the Central Bank, the Ministry of Finance, and the Association of Banks.
Opposition from Banks and Government
Banks in Cyprus, already subject to a 0.15% special tax on deposits that has raised over €500 million in the past decade, strongly oppose additional taxation. They argue the measure could send negative signals to foreign investors and destabilize the tax environment. The Central Bank Governor also warned that current high bank profitability is temporary and is going to be normalised.
Broader Political Implications
President Nicos Christodoulides has not publicly endorsed or opposed the measure but is reportedly likely to refer it back if passed. Meanwhile, Greece rejected a similar proposal under Prime Minister Kyriakos Mitsotakis.
Banks Propose Alternative Use of Existing Funds
Banks suggest that funds from the existing special tax could be redirected to support vulnerable households without imposing additional burdens. They stress that targeted use of these funds would better align with social policy goals.
The proposal highlights a broader debate about balancing social welfare with economic stability. Whether lawmakers can reach consensus remains uncertain as the holiday deadline looms.
