Sectoral tax, i.e. higher taxation, which affects only selected sectors of the economy (such as banking, insurance, energy, telecommunications, or the information technology segment) is considered to be an effective tool for increasing state budget revenues.
However, the new proposals put forward in the Czech Republic discuss only additional tax revenues, whilst totally neglecting the additional social costs in the form of unintended impacts caused by the imposition of a sectoral tax on selected segments of the national economy.
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The imposition of a sectoral banking tax involves risks of interrupting continuous development by disrupting steady market growth, and forcibly seeks for a new equilibrium with negative implications for the confidence of clients.
Given the importance of the banking sector on strong economic development, the abovementioned changes may cause national economic fluctuations and could potentially jeopardize competitiveness. As many foreign experiences have shown, the sectoral banking tax can bring with it a number of negative consequences; costs of which were borne not only by savers or other bank clients, but also by taxpayers.
Moreover, such a serious intervention in the economy increases the risk of market uncertainty. The sectoral banking tax can become a dangerous precedent for other sectoral taxes, such as the energy sector or telecommunications. Significant changes in the market environment are also a negative signal for foreign investors.
What the Sectoral Banking Tax Might Look Like?
Experiences around Europe offer a wide range of forms of sectoral banking tax, which differ mainly in the concept of the tax base on which the tax determination is derived. The tax base may be, for example, total liabilities minus equity and insured deposits (Austria, Belgium, Slovakia) or total liabilities, excluding all deposits but including derivatives (Germany) or total assets (Hungary, Poland)1.
Sectoral banking taxes may, of course, differ in the size or in its progression (tax rate depends on the size of the bank’s balance sheet items).
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1 CYRRUS (2017) Analýza dopadu sektorového zdanění bank. [in Czech]