Tax expert says minister’s bank tax argument is flawed

Soffía Eydís Björgvinsdóttir, a lawyer, KPMG partner and tax specialist, says Finance and Economic Affairs Minister Daði Már Kristófersson is using flawed reasoning to justify a planned increase in the bank tax, mbl.is reports.

The 2027 budget proposal calls for the special tax on financial companies to rise from 0.145 percent to 0.254 percent of their liabilities. The increase is expected to bring the Treasury around six billion Icelandic krónur in additional revenue.

Kristófersson has said that banks received unexpected additional income because of inflation and have sufficient room to absorb the increase. Soffía says, however, that the minister’s argument concerns the banks’ profits, while the tax is imposed on their liabilities.

If the aim is to tax unexpected excess income, she says, there is already a special financial activities tax that applies to banks’ profits. That tax is not being changed in the budget proposal.

“There is a mismatch between the argument and the tax base. The minister refers to the banks’ unexpected income because of inflation, but the tax being increased is imposed on their liabilities, regardless of their financial performance,” Soffía told Morgunblaðið.

She also noted that the profits of financial companies are already subject to an additional six percent tax.

“If the aim is to tax temporary excess profits, it must therefore be explained why a permanent increase in a tax on liabilities is the right instrument,” Soffía said.

She said the consequences of the increase were also foreseeable. A tax on liabilities raises banks’ financing costs regardless of their performance, meaning the cost could be passed on to customers.

Soffía also criticised the fact that the increase would be permanent, while the minister’s reasoning is based on higher bank income during a temporary period of inflation and high interest rates.