The temporary levy on windfall profits of Lithuania’s banks introduced a month ago may weaken its reputation as a stable country, the International Monetary Fund (IMF) says.
An IMF mission completed its work in Lithuania this week and concluded that frequent tax changes in those sectors that attract a lot of foreign investment could damage the country’s reputation.
“Frequent ad hoc tax changes in sectors with significant foreign investment risk weakening Lithuania’s hard-fought reputation as a stable, predictable, and competitive tax destination,” reads the IMF report published earlier this week.
IMF analysts insist that preserving financial stability in the context of volatile international financial markets is a top priority.
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The IMF report also says that to minimise the levy’s negative impact on banks, it should remain temporary, otherwise it could be perceived as a tax on foreign investment.
“The levy on banks should remain temporary to avoid being perceived as a tax on foreign investment and minimise the potential negative impact on efficiency,” the IMF said.
Amid surging bank profits due to the ECB’s hikes in interest rates, Lithuania recently introduced a temporary tax amounting to 60 percent of a bank’s net interest income that exceeds the average of four regular financial years by more than 50 percent.
The levy is expected to raise more than 400 million euros in revenue for the government. The money will be used for defence and developing military and civilian transport infrastructure.
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