Higher Taxes on Banks: Study Reveals Risks to Lending and Investment

The consequences of additional taxation on banks may include reduced lending, higher costs of financial services, diminished investment attractiveness of the banking sector and a change in the very business model of the sector. Moreover, actual tax revenues may turn out to be several times lower than the initial government forecasts.

This is evidenced by the findings of an analytical study prepared by the Ukraine Economic Outlook analytical team in cooperation with Serhii Mamedov, Vice President of the Association of Ukrainian Banks and Chairperson of the Management Board of CB “GLOBUS”.

The study analysed more than 50 cases of increased taxation of the banking sector in different countries around the world over the past 25 years. Particular attention was paid to five European countries: Poland, Hungary, Italy, Romania and the United Kingdom.

One of the most illustrative examples was Italy. In 2023, the Italian government announced the introduction of a 40% tax on banks’ windfall profits, expecting to generate approximately EUR 3 billion in additional revenue. However, the financial market reacted immediately: in just one day, the banking sector lost around EUR 10 billion in market capitalisation.

Ultimately, the government softened the initial rules, allowing banks to allocate the relevant funds to special capital reserves instead of paying the tax. Almost all major banks took advantage of this option. As a result, the original tax mechanism generated virtually no revenue for the state budget, instead of the expected EUR 3 billion.

A similar situation arose in Romania, where, at the end of 2018, the government announced the introduction of the so-called “greed tax”, linked to interbank interest rates.

In just one day, the BET stock market index plunged by approximately 11%, while shares of major banks lost 17–20% of their value. Following the negative reaction from financial markets, the government was forced to revise its initial decision.

As a result of this tax mechanism, the state budget received approximately RON 444 million instead of the projected RON 3.4–3.6 billion. In other words, actual revenues were approximately eight times lower than expected.

Meanwhile, the experience of Poland and Hungary demonstrated another risk: the potential long-term impact of additional taxes on lending to the economy.

In Poland, the introduction of an additional tax on banking assets in 2016 changed the incentives for financial institutions. Since government bonds were exempt from the new tax, purchasing them became more tax-efficient than lending to businesses.

According to the data presented in the study, between 2015 and 2019, the ratio of loans to businesses to GDP decreased from 17.7% to 16.8%, while the volume of bank financing for the government increased from 16.3% to 19.5% of GDP. In addition, a study by the National Bank of Poland found that banks passed on part of the additional tax burden to customers by adjusting lending and deposit rates.

In Hungary, the bank asset tax, introduced in 2010 as a temporary measure, remains in force in 2026. Other special levies were subsequently added, including a financial transaction tax and a windfall profits tax.

Over an extended period, lending to the private sector in the country also declined, from approximately 60% of GDP before the global financial crisis to 30–35% of GDP in 2024–2025. The researchers emphasise that this trend was driven by a combination of economic factors; however, the additional tax burden was one of the factors that made the recovery in lending more difficult.

The United Kingdom, by contrast, took a different approach. Seeking to preserve London's competitiveness as an international financial centre, the government gradually revised the parameters of its special bank levy and, in 2023, reduced the bank surcharge on corporation tax from 8% to 3%.

Against the backdrop of international experience, the decision adopted by the Verkhovna Rada on 27 October 2026 is particularly relevant. With 265 votes in favour, Parliament passed Bill No. 15262 at first reading. The bill provides for the extension of the increased 50% corporate income tax rate for banks through 2027. It also proposes restricting banks' ability to offset losses from previous years when calculating taxable profits. Therefore, before the law is finally adopted, it is particularly important to assess not only the expected state budget revenues but also the potential long-term implications for lending, investment and Ukraine's economic recovery.

“The effectiveness of additional taxation on banks cannot be measured solely by the amount of revenue generated for the state budget. It is equally important to consider its impact on lending, the cost of financial services, investment attractiveness and the banking system's ability to support economic growth.

This international experience is particularly relevant for Ukraine, which, amid the war, must simultaneously ensure funding for the state's needs and create the conditions for future economic recovery. The key question is how to choose between a short-term fiscal effect and long-term economic returns,” the Ukraine Economic Outlook study concludes.