(ShareCast News) - The banking sector will have to pay out vastly more than expected from George Osborne's new profits surcharge, which was introduced to reduce the pain of the Bank Levy on lenders such as HSBC.When the Chancellor unveiled the new 8% surcharge on bank profits and plans to lower the levy in his summer budget, the Treasury forecast there would be a £1.66bn net tax gain over the five years of the current parliament.But research by accountants EY has forecast this calculation is likely to be "vastly understated" and that the new surcharge could "easily" take double the Treasury's predicted takings.Smaller 'challenger' banks, such as Virgin Money, Shawbrook and Aldermore, had been hoping for a reprieve from Osborne as it is felt the surcharge will hit them harder.Even with the reduction in the bank levy, EY calculated that the changes will increase the net tax burden on bank profits by around 5% over the next five years.EY said 2016 and 2017 are likely to be the peak of the burden on the industry, with UK retail banks hit hardest.In trying to fix the distortions created by the bank levy, the current policy actually "significantly increases the pain" in 2016 and 2017, said Richard Milnes, banking partner at EY."It retains the pressure of the bank levy on balance sheets, which we know puts a brake on lending to the real economy, while simultaneously ramping up taxation on profits."EY argued that the government is using numbers which are below industry estimates to set the tax rate, in part this is because the Treasury numbers have to be consistent with the Office of Budget Responsibility's model."The OBR itself classified the estimate with the highest level of uncertainty that it can give to policy costings, noting that the modelling of banking profits was both complex and important for the costing."EY added: "In addition, the use of tax losses (deferred tax assets) generated during the crisis has dampened tax payments since the crisis and we are yet to see the impact of the change in policy announced last year (effective from April 2015) on banks' ability to use those deferred tax assets. This means that any model for forecasting expected tax take that's based on prior years' corporation tax receipts from the sector will be incredibly conservative."