Business

How will tax on withdrawals, assets affect bank fees?

BY SHAMILLE SCOTT Business reporter scotts@jamaicaobserver.com

Sunday, April 27, 2014    

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THE new taxes on financial transactions and bank assets will definitely be passed on to consumers.

However, it is not yet clear how much deposit taking institutions will be able to recover or if the costs associated with collecting the taxes that will be paid over to the Government will translate into fees in excess of the taxes themselves.

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.

The Government also plans to raise an additional $1.788 billion from an 80 per cent increase in the asset tax for deposit-taking entities regulated by the Bank of Jamaica.

National Commercial Bank said the new fees won't be so clear cut given the high degree of competition in the local market.

"As to how it will be implemented and what fees are associated, that becomes a competitive issue and that's not something we can speak about openly," said Patrick Hylton, group managing director.

Assuming that the withdrawal tax goes forward, there will be technological changes in how the bank operates, Hylton told investors at the company's investors briefing held at its Wellness and Recreation Centre on Friday.

The new withdrawal and encashment tax, which is expected to bring $2.3 billion into Government coffers over the nine months to March 2014, is part of a raft of revenue measures aimed at raising an additional $6.6 billion this fiscal year

"We understand and empathise, but we are trying to balance stakeholder interest, as well as shareholder interest based on the performance of the institution as well as being a good corporate citizen," he said.

As for the increase in the rate at which the asset of institutions, such as NCB will be taxed, Hylton indicated that the imposition of the tax concerned the bank.

"None of us want to be taxed any more, all of us feel that for a very long time we have been making sacrifices, but at the end of the day, sacrifices have to be made, but it is to be done in a way that the burden is more equitably shared," he said.

Still, it appears that the financial institution is banking on possible changes to the proposals.

"The minister has indicated that there will be a review of some of the taxes," said Hylton. "We have to be patient, but if the new measures come into place, we will be ready."

Until then, Hyton figures the immediate course of action is to find alternatives to propose to the Government.

NCB reported a 72 per cent increase in its second quarter profit.

"The results demonstrate that we have an appropriate business model for the current economic context," Hylton said.

For the three months ended March 31, 2014, the company posted $2.9 billion in net profit, up from $1.7 billion in the corresponding period in 2013.

NCB in its accompanying results said that the beginning of the financial year was challenging but its overall strategy resulted in its positive performance.

Net interest income for the quarter under review was $6.1 billion, up from $5.8 billion during the corresponding quarter in the prior year. Net fees and commission income grew by 12 per cent, up from $1.8 billion in the three months ended March 2013, to $2 billion in the quarter under review.

Operating expenses marginally increased by one per cent, moving from $6.8 billion in 2013 to $6.9 billion during the quarter under review.

"Over the next two quarters we will continue to focus on sales effectiveness and productivity, efficiency and technological advancement, while improving customer service," he said.

The company said it continues its efforts to increase efficiency and transform how it delivers its products and services, with an aim to improving customer experience.

An interim dividend of 35 cents per ordinary stock was approved last week and becomes payable on May 22.

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