AKEL has returned to Parliament with a renewed proposal for an extraordinary solidarity levy on banks, effectively a windfall tax on banks in Cyprus, targeting the sharp increase in net interest income during the inflationary surge of recent years. The bill, tabled by AKEL General Secretary Stefanos Stefanou, draws from schemes implemented in Spain and the Baltic states, and follows a recent European Commission report confirming that such measures did not harm financial stability.

>>EU Report Finds Bank Windfall Taxes Effective When Carefully Designed<<

The proposed levy would apply only for 2025 and 2026. Each bank’s net interest income for those years will be compared to 2022, the year when ECB rate hikes began. If the increase exceeds 40%, the excess amount will be taxed at 20%. AKEL argues that banks’ net interest income has doubled since 2022, not due to productivity gains, but because higher lending rates were not matched by increases in deposit rates — effectively shifting the cost of monetary policy onto borrowers.

Revenue from the levy would be channelled into housing support: subsidies for borrowing costs on new and existing primary-residence mortgages, assistance for vulnerable borrowers, and programmes promoting financial literacy. Collection will fall under the Tax Commissioner, with funds deposited in the Consolidated Fund of the Republic.

The bill also includes strict safeguards. If a bank is found to be passing the levy onto its customers, the Tax Commissioner may impose a fine equal to 150% of the amount passed on. Non-payment of the levy could lead to court proceedings to recover it as a civil debt.

This is AKEL’s second attempt to introduce a banking windfall tax. A broader 2023 proposal was narrowly rejected in December 2024 after warnings from the Ministry of Finance, the Central Bank and the Association of Cyprus Banks that such taxation could undermine stability. The party now argues that with households facing a severe housing and cost-of-living crisis, and banks enjoying high capital adequacy and strong liquidity, a “fairer distribution of the benefits of monetary policy” is necessary.

The proposal also comes at a moment when banks are pressing for the abolition of the long-standing special tax on credit institutions introduced in 2011. The Association of Cyprus Banks claims that the reasons for that tax no longer exist and that maintaining it harms their competitiveness in attracting investment.