Gylfi calls proposed bank tax increase an outdated measure

Gylfi Magnússon, a professor at the University of Iceland’s business administration department, has called the government’s bank tax an unusual form of taxation, mbl.is reports. He said it was unusual to tax companies’ debts rather than their profits or wages.

The government’s 2027 budget proposal would increase the bank tax and generate six billion Icelandic króna for the Treasury. Speaking on the radio programme Vikulokin on Rás 1, Gylfi said there were arguments both for and against raising the tax in the current economic climate.

“Generally speaking, it is rather strange taxation to tax companies’ debts, or banks’ debts in this case. Taxes are usually imposed on profits or wages or something similar,” he said.

However, Gylfi said the increase itself was not particularly large. It amounted to around one per mille, he said, meaning it would not cause a major shock to the financial system even if it led to slightly higher lending rates, lower deposit rates or reduced financing.

Gylfi said the tax originated after Iceland’s financial collapse, when it was perhaps mainly intended as a tax on failed banks’ estates. Those estates had long since been settled, he said, leaving a tax on operating banks that now appeared somewhat outdated.

He also questioned whether there were strong grounds for taxing banks more heavily than other industries. Taxes on tobacco, alcohol and fuel were justified by factors such as pollution, he said, but the argument that banks should pay more because they earn large profits was weaker.

Although such reasoning could work politically and in public debate, Gylfi said company income tax was generally based on profits rather than on imposing a higher rate on the most profitable companies.

He also noted that the public owned a significant part of Iceland’s banking system and represented a large share of its customers. Landsbankinn was almost entirely state-owned, while pension funds held around half of the ownership in the other banks.