Avia Collinder, Business Reporter
Julian Mair, president of the Jamaica Securities Dealers Association (JSDA), is predicting that the new financial transaction tax (FTT) will drive investors to seek out safer foreign havens for their holdings.
Finance Minister Dr Peter Phillips aims to raise $2.25 billion of revenue this fiscal year by imposing a levy on withdrawals from banks and encashments from investment houses.
Phillips acknowledged this week that the financial houses may pass on the cost of the tax to their clients in the form of higher banking and transaction fees, but said the ministry has estimated such impact to be minimal.
Mair said on Wednesday that the FTT will result in a reduction in purchasing power and capital flight, "as investors will seek to hold their funds in overseas markets that are more investor-friendly".
The Jamaica Bankers Association, meantime, warns that the tax could dissuade banking activity, and raised the spectre of leakage from the formal to the informal sector.
Individual firms declined comment, saying the positions of the associations reflect the industry view.
The finance ministry, in 2012, had proposed an increase in the asset tax to 0.2 per cent for financial institutions but subsequently amended it to 0.14 per cent after heavy lobbying from the banks.
However, last Thursday Phillips again took aim at financial assets by re-upping the asset tax to an even higher rate of 0.25 per cent. It aims to raise $1.8 billion.
The proposed financial transaction tax rates are: 0.1 per cent for withdrawals or encashments below $1 million, 0.09 per cent up to $5 million, 0.075 per cent on transactions above $5 million up to $20 million, and 0.05 per cent above $20 million.
Together, the FTT and adjusted asset tax account for 60 per cent of the $6.685 billion of new revenue that the finance ministry aims to raise this fiscal year.
CHASE TAX DODGERS
The JBA said that rather than impose additional burden on the tax compliant, the ministry ought to be chasing tax dodgers.
"As it stands, financial institutions are already subject to the higher rate of corporate income tax at 33.3 per cent, compared to 25 per cent for other companies. Financial institutions also suffer much higher rates of asset tax, compared with all other companies," said the JBA.
"These same financial institutions have already supported the Government's debt reduction strategy through the Jamaica Debt Exchange and the National Debt Exchange."
Only a tenth of registered companies pay corporate taxes, according to the banking group, which says the Government ought to be strengthening its compliance efforts to go after the untaxed.
Mair said the FTT would lead to further depreciation of the Jamaican dollar - ostensibly as capital flows to foreign holdings - thereby "placing additional inflationary pressure on the price of even the most basic commodities".
Securities dealers, he said, also anticipate that the FTT will reduce market liquidity and efficiency, "resulting in an increase in interest rates on loans, an outcome which will run contrary to the desire to better facilitate and encourage production in the local economy".
The securities sector last year saw an uptick in funds under management to $729 billion at year end but a decline in net interest income from $4 billion to $3.5 billion among 32 firms of 43 in the market, according to the FSC.
According to the JSDA president, the negative impact of the transaction tax on Jamaican investors, both individuals and businesses, and the capital markets and economy in general, far outweigh the perceived benefits.
"The JSDA further believes that such a proposed move is 'unworkable' within the June 1 timeline stipulated by the minister, and will represent an operational nightmare for the financial sector," said Mair.
"We are extremely concerned about the proposed move and believe that such a levy will negatively impact the country and investors. In addition to withholding tax on interest income, our customers will now have to bear a new tax on the withdrawal of their money, further eroding their already taxed income," he added.
He contended that the imple-mentation of similar measures has proved 'unworkable' in other markets.
The JSDA, he said, is calling on the Government to "revisit their budget, evaluating both projected revenues and expenses, for more plausible ways for the country to achieve its objectives".
The JBA, meantime, has signalled it is ready for dialogue that leads to "a more balanced approach" to feed the Government's fiscal needs.
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