Czech banks face 60% windfall tax to fund state energy subsidies

Bloomberg

The Czech Finance Ministry told the country’s largest banks it plans to impose a windfall tax on them to fund energy subsidies, according to a summary of the meeting.
The government would apply a tax rate of 60% on lenders’ extraordinary profit, seeking to raise about 25 billion koruna ($1 billion) a year, according to a note summarising the meeting between ministry officials and banking executives. Bloomberg News saw the information, which was circulated among lenders after the talks.
The special levy is expected to remain in place for three years, raising about 75 billion koruna over the period. Czech banks fall on the news.
Finance Ministry spokeswoman Michaela Lagronova said she couldn’t comment on the windfall-tax plans ahead of an official announcement.
Prime Minister Petr Fiala’s administration is trying to boost budget revenue to aid households and businesses without the deficit spiraling out of control. While the center-right ruling coalition earlier pledged not to raise taxes, it has recently signalled it may tap power producers, banks, oil refiners and mining companies.
Surging inflation prompted Czech policy makers to rapidly raise interest rates from near zero to 7%, the second-highest level in the European Union, driving record profits at local lenders. The country’s banking industry is dominated by international companies including KBC Groep NV, Erste Group Bank AG, Societe Generale SA, UniCredit SpA and Raiffeisen Bank International AG.
The windfall tax would only affect banks that had a net interest income above 6 billion koruna last year and apply to profits that exceed the average for 2018-2021 plus 20%,
according to the note.
SocGen unit Komercni Banka AS fell as much as 3.1% on Thursday morning, before paring the drop and trading down 1.2% as of 10:23 am in Prague. Moneta Money Bank AS was 1.4% lower.
J&T Banka AS analyst Milan Lavicka said it remained unclear how much banks would actually pay because the outlined formula would only raise single-digit billions of koruna per year.
“We will wait for the official statement of the government to evaluate the impact on individual banks,” he wrote in a report.
Monika Zahalkova, head of the Czech Banking Association, said that the government’s windfall tax plan was “a big mistake” that will weaken the industry and its ability to
support the economy.
“At least we now know what the government’s plans are,” she wrote. “We are convinced that a windfall tax is exceptionally non-systemic and ineffective.”