Considering the current deliberations of tax law amendments at the Ministry of Finance, including the section on corporate income tax concerning credit institutions, I would like to address what we perceive as the incorrect desire to impose an additional solidarity tax on net interest income of banks, and to support the recent viewpoint of the Finance Minister that taxation should be transparent and sustainable, without hampering the abilities of banks to grow their lending volumes.

Firstly, applying taxation to specific income positions in comparison to past periods, rather than the financial results of the respective period, is not appropriate. There are several expenditure positions that have increased simultaneously with rising interest rates. Similarly, there are financial assets whose value decreases as interest rates rise. This increase in expenses and the decrease in the value of financial assets are reflected in other balance sheet or profit and loss calculation items.

For instance, banks allocate a portion of their liquidity into government bonds and fixed-income securities. However, as interest rates rise, the market price of these securities significantly decreases. The more rapid the increase in interest rates and the longer the maturity of the acquired securities, the more pronounced the decline in their market value. This decrease in value is a direct and opposite effect to the rise in interest rates, but it is in no way reflected in net interest income; instead, it is accounted for in other profit and loss calculation items.

Secondly, such a calculation does not incentivize banks to promote lending; quite the contrary, it may lead banks to consider restraining the growth of net interest income by reducing the pace of lending or even by reducing their existing loan portfolios.

Thirdly, not all banks are in the same stage of growth and development. There are banks that have reached maturity, and there are banks that are experiencing rapid growth, primarily smaller banks. For banks experiencing rapid growth, historical financial results lag significantly behind those of the last year or two. Consequently, an additional tax on income growth compared to historical averages should be perceived as a penalty for the bank's growth.

Fourthly, banks are placed in an unequal situation compared to companies in any other industry whose incomes have rapidly risen due to cyclical or one-off catastrophic economic processes, such as the situation with the Ukraine war and the rapid increase in raw material prices, which subsequently led to an increase in interest rates.

We advocate for a fair and transparent tax policy. Taxes should be comprehensible, and the tax base should be clear. Additionally, taxes should serve a specific purpose; they are not merely supplementary income for the budget. Any additional tax, by definition, indicates a desire to restrict activity in a particular sector. Is lending a sector we wish to restrict?

If we specifically consider the situation of Industra Bank, applying the so-called "Lithuanian solidarity tax version," which entails imposing a solidarity corporate income tax on all net interest income exceeding 50% of the average historical income for the previous four years, would result in us having to pay approximately 80% in additional tax for the year 2023 on top of our net profit!

We understand the state's goal of receiving clear and predictable tax payments into the state budget from banks. Therefore, we support the so-called "Estonian advance tax model," which dictates that banks pay a predetermined advance payment of corporate income tax to the state budget based on the net profit earned in the previous reporting year.

Of course, to promote the development of banks, this advance payment should be lower than the actual tax payment based on the distribution of net profit.