Although more than 30 bankers are behind bars for their role in its traumatic economic crisis, Iceland still seems to be hell bent on extracting its pound of flesh from the banking industry.
Why else would it continue to subject its banks to a taxation regime that is now looking increasingly past its sell-by date? Besides paying income tax of 20%, Arion Bank, Islandsbanki and Landsbankinn are each still clobbered with an additional levy of 6% of all taxable income above IKr1 billion ($10 million). Then there is a 0.367% bank levy on total debt above IKr50 billion. For good measure, Iceland’s banks are subject to a special tax on salaries of 5.5%.
This all adds up to a big number. In 2017, the total tax paid by the three banks was just shy of IKr30 billion (more than 1% of Iceland’s GDP). Of this total, almost half (about IKr14.4 billion) was accounted for by these special taxes, with seriously detrimental consequences for the banks’ profitability. In the case of Arion Bank, for example, return on equity without the ancillary levies would have been 8.2% in 2017.