A controversial 40% tax on the banks’ income derived from higher interest rates was revised in Italy, now favouring banks that hold a higher proportion of government bonds
As reported by Reuters, Italian government has introduced an amendment to a tax targetting banks’ net interest margin (NIM), after numerous objections from the industry players. The revenues from the levy are aimed to fund tax cuts and state guarantees on loans to small and medium-sized enterprises (SMEs).
According to the latest proposal, the tax on NIM, which measures the profit from the difference between lending and deposit rates, will be capped at 0.26% of risk-weighted exposures.
A month ago, when the tax was first announced, the banks were supposed to pay a one-off 40% tax on income derived from higher interest rates. However, the economy ministry clarified it would not collect more than 0.1% of lenders’ total assets. Per the update, 40% tax on the NIM earned in 2023 will incur in Italy if the margin has grown by 10% or more from 2021 levels.
Reportedly, the new taxation rule faced criticism not only from the banking institutions themselves, but also from international investors and the European Central Bank (ECB).
The proposed amendments will allow the banks to boost their non-distributable reserve buffers by an amount equivalent to two and a half times the levy and setting that aside specifically in their accounts instead of paying the levy. In addition, the new terms favour banks with a higher proportion of government bonds among their assets due to a zero risk weight. It is expected that cooperative banks will be exempted from the tax, as they usually put aside a large part of their profits as reserves.
Another option is for lenders to boost capital. The banks can distribute it later, but they would have to pay the levy plus interest charged at the rate the ECB applies to lenders’ deposits.
State auditors at the Treasury approved the latest version of the proposal on Saturday.
Earlier this year, Italy approved 26% tax on crypto.