The bank levy has been extended to 2021 in the Finance Bill, with a view to generating income of €750 million for the exchequer over the period.

A review of the methodology means there will be changes to the way it is collected from the various financial institutions.

It was previously collected based on deposit interest retention tax (Dirt), with 2011 set as the base year. This will be revised for next year with 2015 used as the new base year for 2017 and 2018.

For the following two years, 2017 will become the base year with 2019 used as the base for calculating the returns for 2021.

From 2017, the levy will be calculated at a rate of 59 per cent of Dirt paid by the institutions in order to retain the annual yield at €150 million.

It is currently applied at a rate of 35 per cent. The rate will be reviewed with each change of the base year.

This change reflects the fact that the Government is planning to reduce the level of Dirt tax on deposits by two percentage points each year for the next four years, reducing it to 33 per cent from its current 41 per cent.

Last year, AIB paid the highest levy at €60 million, followed by Bank of Ireland at €38 million, Permanent TSB at €27 million, Ulster Bank at €18 million and KBC Bank Ireland at about €7 million.

Banks such as KBC would be expected to pay a higher amount under the new methodology given its success in recent years in attracting new deposits from customers.

The Banking & Payments Federation Ireland (BPFI) declined to comment on the changes to the methodology used in calculating the levy but said it was important that it “ceases to exist in 2021”.

“In addition to their significant contribution to the exchequer by way of employment and related taxes and VAT, [Irish] banks will be paying a sum estimated in the billions of euro to the [ECB’s] Single Resolution Fund over the coming years,” the BPFI said.

The levy was originally introduced for three years from 2014 to 2016 to allow for a “contribution” from the banking sector to the economic recovery. It has contributed €150 million a year since then.