The bank windfall tax proposed by Bulgaria's ruling parties is similar to temporary levies in the Czech Republic, Lithuania and Italy, according to an analysis by Simeon Djankov, head of the Fiscal Council.

The tax alone is expected to raise more than €1bn. The analysis says this could cut the budget deficit without raising VAT, income tax or social contributions.

In September, the finance ministry said it plans to tax the 2027 windfall profits of banks, insurers and reinsurers, telecoms firms, currency exchange offices and fast-loan companies. Retailers with at least five food stores are also on the list.

The Association of Banks in Bulgaria opposes the plan and has urged since early October that it not be adopted. It says the tax puts at risk banks' ability to fund the economy and does not comply with national and EU law.

Banks pay extra tax in 12 EU countries: Belgium, the Netherlands, Slovenia, Estonia, Latvia, Lithuania, the Czech Republic, Romania, Slovakia, Hungary, Spain and Italy. The systems differ. Some countries tax windfall profit or extra net interest income. Others tax banks' revenue, assets or liabilities.

The Czech Republic charges a 60% tax on windfall profit for 2023–2025, as defined by law. Lithuania taxes extra net interest income with a temporary solidarity contribution. Italy chose a one-off extraordinary levy tied to the rise in net interest income. Spain taxes income from interest and bank fees. Slovenia imposed an extra tax on banks after the devastating floods of 2023, and the money goes to rebuilding the country.

Djankov says the logic is the same everywhere: when returns are high because of a shift in the economy and in interest rates, part of the extra income goes temporarily to public finances. He says high profits since 2022 come from rising key interest rates in Europe. Income from loans and other interest-bearing assets grew fast, while interest on deposits rose more slowly. Net interest income grew mainly because of the change in interest rates, not because of new investment, technology or extra business risk.

Temporary extra revenue can pay for temporary extra spending, so the government can limit its need for new debt or higher taxes elsewhere, the analysis says. The Czech and Lithuanian taxes were temporary from the start. A one-off levy limits long-term uncertainty over banks' capital and lending, and its temporary nature also lowers the risk that the tax will hold back investment.

Djankov says a windfall tax in Bulgaria would not be a general rise in corporate tax for banks. He says a more precise approach is a temporary tax on profit above a set historical rate of return, with a clear end date.