Opposition party Akel is bent on taxing banks’ historically high profits on Thursday, while critics argue the move intended to effect social justice is misguided.

Member of the House finance committee and Akel MP Andreas Kafkalias told the CyBC on Thursday his party had revised its earlier failed proposal to tax banks’ inordinate interest earnings through a temporary levy.

Elsewhere, committee chair and Diko MP Christiana Erotokritou reiterated previous criticism for the move, saying that it would backfire on the very people it was intended to help.

Kafkalias, however, said the proposal, which had been discussed a number of times in the past, had been altered to remove a potentially anti-constitutional element and the hope was for it to be brought before the plenary next week.

“The proposal no longer runs any risk of being deemed unconstitutional by the president,” Kafkalias said, as a point on the creation of a separate solidarity fund had been removed.

While Disy had previously positioned itself emphatically against the move its, and other parties’, stance vis-a-vis the updated proposal remained to be seen, he said.

“This is an issue of social justice,” the Akel MP said. “At a time of economic malaise, the banks are gaining hyper-profits on the one hand, and burdening businesses and the public on the other.”

The head of the Cyprus central bank had himself admitted that Cyprus banks had made massive windfall profits, thus confirming the aberration, the Akel MP argued.

Akel is proposing that taking the year 2022 as a benchmark, during which EU banks enjoyed historically high profits, a five per cent tax is to be imposed on gains made by the crediting institutions from bumped-up interest revenues. The tax could also apply to 2024 and 2025.

Fear mongering about the effect the move may have on banks was exaggerated as the tax was minimal, Kafkalias said.

Erotokritou for her part, countered Kafkalias’ statements saying that taxing windfall profits would simply cause the banks to hike-up other charges.

“The move may be well intentioned, but it is not the right approach,” she told the CyBC.

The European Central Bank had also expressed reservations over such an approach and its report with regards to the specifics of Cyprus, was being awaited and must be taken into account, she said.

“Cyprus needs to proceed with extreme caution so as to not find itself at odds with the EU [trajectory] for the island’s banking sector,” she said.

While not outright rejecting Akel’s proposal she said parliament would be following the usual procedure and the eleven members of the financial committee would decide whether the proposal was “ripe” for the plenary.

“Social justice is needed but this type of measure is destined to boomerang on those it was intended to help because the instinctive reaction from banks will be to transfer the tax [to their customers],” she said.

The correct approach to social restitution, the Diko MP said, was to pressure banks to improve their slow reflexes when it came to dropping interest rates and automatic increases, procedures which could be improved.

Only four EU states had attempted to carry through taxation on banks’ windfall profits, Italy, Hungary, Lithuania and Spain, Erotokritou said.

Of these, two were under far-right governments, and Italy had amended its original regulation to make the measure voluntary, while Lithuania had rescinded the measure after six months.

Moreover, the government and the banking system are poised on December 12 to impose a significant tax of 15 per cent on large corporations, in line with the EU’s global minimum corporate tax deal, Erotokritou said, which would alter the social landscape.

Additionally, taxation on total deposits – a mechanism unique to Cyprus banks –had secured a rainy-day fund to the tune of half a billion euros, to shield the public against any banking collapse akin to 2011-2013, without burdening depositors, she said.