bank taxation — bank taxation — The Cyprus Chamber of Commerce and Industry (Keve) has voiced its strong opposition to the proposed additional taxation on banks, arguing that this measure would not represent a prudent economic decision.
In a statement released on Thursday, Keve highlighted that “any form of taxation cannot under any circumstances serve as an instrument of social policy.” The chamber emphasised the substantial contributions made by the banking sector, which has already shouldered significant tax burdens between 2017 and 2024.
During this period, banks in Cyprus contributed a total of €755 million, which included €285 million in corporate tax and €470 million in a special levy on deposits. Keve asserted that these contributions have provided the state with ample resources to support borrowers and vulnerable communities without the need for further taxation.
Concerns were raised about the potential destabilising effects of additional taxation on the banking sector. The chamber warned that such a move could undermine the stability and predictability of the tax framework, sending a negative message to international investors and risking the country’s credibility.
Moreover, Keve pointed out the risk that increased tax pressures could ultimately be passed on to borrowers. This concern is echoed by the European Central Bank (ECB), which, in an opinion published last December, cautioned against raising taxes on banks based on customer deposits. The ECB stated that such an increase could have far-reaching implications that extend beyond fiscal policy and impact monetary policy as well.
The ECB highlighted the importance of credit institutions in ensuring the effective transmission of monetary policy throughout the economy. According to their analysis, raising the tax burden on banks could distort lending conditions and diminish the attractiveness of deposits for households and firms, potentially leading banks to seek alternative funding sources.
In its evaluation, the ECB noted that while Belgian banks are currently well capitalised and profitable, higher taxation could still tighten financing conditions, either directly or indirectly affecting profitability and capital positions. The risks associated with this could stifle the recovery of bank lending to households, which is still in progress.
Keve further contended that targeting a specific sector for additional taxation could set a dangerous precedent, adversely affecting future investment activity in Cyprus. The chamber referenced the guiding recommendations of the International Monetary Fund and the European Stability Mechanism, noting that EU member states with high credit ratings, such as Germany and the Netherlands, do not impose similar extraordinary charges on their banking sectors.
While Keve reaffirmed its support for social measures aimed at assisting those in need, it insisted that such measures must be designed to protect financial stability, maintain investor confidence, and ensure Cyprus remains internationally competitive.
In closing, the chamber expressed its expectation that all businesses in Cyprus would contribute to society through appropriate corporate social responsibility initiatives rather than through additional taxation on the banking sector.
