Cyprus’ main opposition party, AKEL, is considering introducing a new bank windfall tax proposal following a European Commission report that found limited negative effects from similar measures in Baltic states.
The party’s previous legislative proposal, which called for a 5% solidarity levy on excess bank profits for 2024 and 2025, was narrowly defeated in parliament last December when it received an equal number of votes for and against, resulting in automatic rejection.
AKEL will examine the EC report and study the possibility of introducing a similar tax in the new year, according to sources familiar with the matter.
A new legislative initiative has not been ruled out, though the situation will become clearer in the coming weeks as AKEL gauges the intentions of other parties.
The party’s previous proposal was rejected after DISY, DIKO, DIPA and MP Alexandra Attalidou voted against it. It received 25 supporting votes from AKEL, ELAM, EDEK, the Greens, DIKO MP Zacharias Koulias and independent MP Kostis Efstathiou.
Revenue from the proposed 5% levy would have gone to the Republic’s Consolidated Fund to finance housing schemes, interest subsidies and other support programmes for citizens. The tax was projected to generate approximately €100 million over the two-year period.
Banks and the Ministry of Finance had issued warnings about potential impacts on banking system stability, lending capabilities and financial institutions’ capital if AKEL’s legislative effort succeeded in parliament.
Critics had also raised concerns about double taxation of banking institutions, suggesting this would impede investor attraction.
However, the recent EU analysis titled “Taxing Bank Windfall Profits: Lessons from the Baltics” indicates that bank windfall profits enhanced by rapid monetary tightening can be socialised through taxation without undermining financial stability.
AKEL’s Head of Economy, Charis Polycarpou, stated yesterday that the EU report “demolishes the scaremongering and unsubstantiated arguments deployed by the banking lobby of parties in parliament last December to stop AKEL’s bill on taxing banks’ unexpected profits”.
“In light of the new data, the Government should answer whether it is considering introducing such regulations in the upcoming tax reform or whether it will continue to declare allegiance to banking interests,” he added.
Polycarpou further noted that the rejection of AKEL’s proposal deprived public coffers of €100 million that would have been channelled to strengthen state social policy, particularly enhancing benefits and programmes for housing policy.
