March 4, 2019 / 1:27 PM / in 4 months

Romania plans to make bank tax fixed, decouple from market rates

BUCHAREST, March 4 (Reuters) - Romania will change a much criticised tax on banks’ financial assets to make it a fixed rate instead of a progressive levy linked to interbank money market rates, a government letter to ratings agency S&P released by an opposition lawmaker showed.

Romania’s Social Democrat government approved the tax in December via emergency decree, alongside a raft of other levies on energy and telecoms firms, without an impact assessment or public debate.

The decree was widely criticised by unions and employers, and the bank tax raised concerns among investors and at the central bank that it could disrupt monetary policy.

The tax was designed to apply to banks’ financial assets on a progressive basis if three- and six-month money market rates exceeded 2 percent.

The government has repeatedly defended the tax saying the goal was to lower Romanians’ borrowing costs.

Earlier this month, Standard & Poor’s (S&P) Global Ratings affirmed Romania’s credit ratings, but took the unusual step of not publishing an outlook. It said it had given the country two weeks to appeal its proposed outlook, which Bucharest said it needed to assess tax moves.

A letter to the ratings agency signed by Finance Minister Eugen Teodorovici was published on Monday by Save Romania Union lawmaker Claudiu Nasui. The letter said the ministry was currently “working to adjust the legal framework” of the tax.

The changes would include “the replacement of the tax on financial assets that is calculated by reference to the ROBOR index with an annual fixed tax that will apply to a tax base of certain categories of assets, including by removing some financial assets from the tax base.”

Some of the assets that could be exempt could include treasuries and government-backed credit lines.

The letter also said banks could individually pay a lower tax if the difference between their interest rates on loans and deposits narrowed and if they lent more to help the economy.

The finance ministry did not comment on the letter.

Energy and telecoms ministers were also discussing potential changes with their respective industries. (Reporting by Luiza Ilie; Editing by Mark Potter)

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