Analytics, Banks, Estonia, Financial Services, Taxation

International Internet Magazine. Baltic States news & analytics Saturday, 30.05.2020, 22:21

Bank of Estonia: Financial services tax could hinder funding of economy

BC, Tallinn, 19.04.2017.Print version
The Bank of Estonia says that the planned taxation of financial services may cause negative side effects to the financial stability of Estonia and undermine the funding of the economy.

That is why it is important to carefully analyze the possible impact before imposing the tax. If the tax is imposed, it should be imposed not only on commercial banks but on as broad a range of financial institutions as possible to avoid market distortions that have a negative effect on financial stability, the central bank said in its fresh financial stability overview.

Considering the free movement of services and capital in the EU and the high degree of integration of the Estonian financial sector, an asset-based tax could result in the reduction of important liquidity and capital buffers that are necessary for ensuring financial stability, the central bank said.

Recovery of economic growth is jeopardized by investments remaining at a low ebb. Corporate investments have been decreasing for four years. Investment activity depends on the feeling of confidence in the future, which in turn is determined by the reliability of the economic and tax policies, the overview said.

Frequent changes to the tax system that leave little response time are increasing uncertainty. In a situation where the labor market rather has overheated and there have been no substantial obstacles to the growth of businesses aimed towards the internal market, the central bank estimates that in view of long-term economic growth, incurring additional expenditures whose cost is a deficit in the general government budget would do more harm than good.

The government should support economic growth by creating a business environment that is as stable as possible, the Bank of Estonia said.

Search site