The future of a tax on bank deposits, which has been in place since 2011, could be set for changes, though nothing has been finalized. As reported by Panayiotis Rougalas in Kathimerini Cyprus, the proposed adjustments involve redirecting the 0.15% tax that banks currently pay into the Republic’s Fixed Fund. The new focus would be on using this money for social policy initiatives and addressing punctuality issues. Any changes will require the approval of Parliament and, if passed, endorsement from the government.
However, AKEL is advocating for an increase in this tax due to what it sees as excessive profits within the banking sector. AKEL’s proposal would raise the rate from the current 0.15% to between 0.20% and 0.30%, which could push the banks’ annual contributions from €69.5 million in 2023 to around €100 million. Banks might find it challenging to maintain such contributions, especially as their profitability—fueled by high interest rates—is expected to decrease once the European Central Bank (ECB) lowers rates. Since 2017, banks in Cyprus have paid €400 million in special taxes on deposits.
The idea of reallocating the 0.15% tax towards social programs is viewed as a practical solution that might win widespread support, though some opposition could come from the Democratic Rally (DISY) party.
In parallel, AKEL has also proposed taxing the so-called super-profits of banks to generate an additional €50 million annually. The party envisions using this money to support vulnerable groups. They suggest this sum could come from a portion of the €70 million that Cyprus paid to the Single Resolution Fund (SRF) last year. The SRF, established to help manage failing banks, has now met its goal of at least 1% of covered deposits across the 21 EU member states by the end of 2023. With this target reached, it’s unclear whether the SRF will continue to collect contributions or if a new “backstop” fund managed by the European Stability Mechanism will step in to support it.
AKEL’s proposal still awaits feedback from the ECB. In the past, the ECB has cautioned against imposing windfall taxes on banks, as seen in other countries like Spain, warning that such taxes could weaken banks’ ability to build capital buffers, making them more vulnerable to economic shocks. Additionally, the ECB noted that such measures could restrict credit availability and raise borrowing costs, potentially slowing economic growth.
Banks in Cyprus argue that any additional taxes would be unfair, highlighting that they have been paying the special tax since 2011, even though it was initially intended to last only two years. They also point out that they continued paying this tax despite suffering substantial losses following the 2013 financial crisis.
While AKEL’s proposal focuses on the banking sector, the party stresses that citizens continue to face financial difficulties despite a decrease in inflation. In August 2024, the Harmonised Index of Consumer Prices showed a 2.2% increase compared to the previous year, with particularly sharp rises in leisure, cultural activities, restaurants, and hotels. AKEL insists that measures must be taken to ease the financial burden on the public, especially in areas where prices remain stubbornly high despite falling inflation.
Source: Cyprus-Mail