March 27, 2019 / 6:40 AM / 4 months ago

UPDATE 1-Romanian govt softens bank tax, keeps energy prices capped

(Adds details, context)

BUCHAREST, March 27 (Reuters) - Romania’s government will lower a widely criticised tax on banks’ financial assets and decouple it from money market rates three months after it approved it, but will retain most energy sector measures, a draft emergency decree showed.

The ruling Social Democrats took markets by storm when they first approved the bank tax and a raft of other levies and measures in late December via emergency decree without public debate or impact assessment.

The government said it was aiming to lower borrowing costs and energy tariffs for households. The European Union state holds four elections this year and next.

But the measures sent shares and the leu currency to record lows and Standard & Poor’s briefly considered downgrading Romania’s credit rating outlook.

The government now plans to lower the tax on banks’ financial assets to 0.2-0.4 percent based on market share, to be paid twice a year. It will exclude state treasuries, government-guaranteed programmes, loans to public administration and other assets from the taxable base.

The tax will be fixed, uncoupled from money market rates, which threatened the independence of monetary policy and rankled the European Central Bank.

A money market index used as a reference point for household loans will be recalculated based on transaction averages, which the government said will help bring credit costs down.

Banks could pay a lower to no tax if they partially or fully achieve government-set targets to boost private sector lending by 8 percent on the year or narrow the differential between loan and deposit interest rates by four percentage points.

The decree, published by the finance ministry late on Tuesday, said the government will postpone enforcing a requirement for mandatory private pension funds to significantly raise their share capital until May 31.

Officials are considering lowering the capital requirements in exchange for pension funds investing in infrastructure projects, but the government must first amend legislation to enable them to do so.

The new decree keeps a 2 percent tax on turnover for energy firms except state-owned thermal and coal-fired power plants, which critics have said is a discriminatory measure that the European Commission could challenge.

Electricity and gas prices for households and some industrial consumers will remain capped until Feb. 2022, a point of contention for energy producers which have said it will lead to lower production and investment.

The government aims to approve the emergency decree on Thursday. (Reporting by Luiza Ilie Editing by Shri Navaratnam)

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