‘Bank taxes counterproductive to IFC push'
BY JULIAN RICHARDSON Assistant Business Co-ordinator firstname.lastname@example.org
THE proposed taxes on transactions at financial insititutions may not bode well for Jamaica's efforts to position the country as an offshore financial centre, according to industry insiders.
Finance Minister Dr Peter Phillips in his budget presentation proposed to impose a tax on withdrawals from deposit-taking institutions and security dealers, with the measure projected to raise $2.25 billion as part of Government's efforts to plug a $6.7 billion gap. Come June, a levy of 0.1 per cent is to be charged on all ABM withdrawals, cheques, Internet transfers, encashments at securities dealers and point of sales transactions.
But financial sector interests, including the umbrella group for the island's commercial banks, the Jamaica Banker's Association (JBA), have argued that the new measure could discourage individuals and businesses from utilising the formal banking system.
What's more is that it could derail Jamaica's efforts to transform into an international financial centre (IFC) — a key growth plan of the Jamaican Government for many years — similar to the Cayman Islands and other regional counterparts, say industry pundits.
"The thing is that it's not a lot of money, but the principle is that you cannot tax capital before it starts to work," said one senior executive who asked not to be named.
"It creates a psychological effect, which is a bigger problem than the money," said the executive, who described the measure as "counter productive" to positioning Jamaica as a financial hub.
Florida-based Jamaican attorney-at-law David Rowe also suggested that the new tax sends the wrong message to overseas investors as the country looks to increase its presence in the competitive global financial services market.
"I am not suggesting that this is a huge tax, but I am suggesting that this is a wrong indication to people who wish to do business in modern Jamaica," Rowe said in an online video he released to the press this week.
"Jamaica should try to have a conservative financial sector that encourages depositors to place their money in the banks rather than tax depositors that place their money in the banks," he added.
The offshore financial services industry is critical to many small islands of the Caribbean, including Barbados, The Bahamas, Cayman Islands, Antigua, and Anguilla which attract hundreds of millions of US dollars each year through tax incentives. According to Rowe, these countries "have stable, strong financial sectors that do not present depositors with unneccessay suprises", and threaten to take business away from Jamaica.
"Jamaica must also compete with London, Switzerland, the US and Canada, all financial sectors where Jamaican-Americans do business rather than doing business in Jamaica," said Rowe, who argued that Jamaica has never fully grasped its potential role as an off shore banking sector.
Rowe, an unofficial voice for the Diaspora in the US at times, said the latest development could add to skepticism some overseas-based Jamaicans already have about banking in Jamaica in the face of tightening international regulations, including the US Foreign Account Tax Compliance Act (FATCA).
"Jamaicans generally want to send money back home to Jamaica but now they would be wondering what are the potential consequences of sending money back to Jamaica -- not only do we have to look at the FATCA situation, but now the Government will without notice take withdrawlas from one's deposits," he said, adding that "this is a serious matter and something that ought to have had further cabinet review before it was introduced in the budget."
The Business Observer was unable to get a comment before press time yesterday from chairman of the Jamaica International Financial Services Authority, Eric Crawford, who was in meetings.
Government has said in the past that Jamaica's IFC will not seek to compete as a tax haven, but rather look to take advantage of specific market niches. These include the large cadre of professionals in accounting, law, banking and finance; a relatively high ranking transportation and telecommunication infras-tructure and the country's proximity to the US, the world's largest market.
However, much to the chagrin of local industry lobbyists, a regional expert suggested at an IFC conference last month that Jamaica is presently more suited to provide back-end support to the lucrative offshore financial services markets rather than any leading role. Hugo Innis, director at Barbados-based Kensington Finance, said the country's high crime rate and cost of doing business were prohibitive factors to setting up an IFC.