Government’s plan to impose a two per cent fee on all foreign exchange transaction is being described as nothing but a “tax grab” by one of this island’s most noted operators in the financial services sector.
What is more, director and local franchise agent for Western Union Horace Cobham told Barbados TODAY the tax measures announced in Tuesday’s Budget would force some companies out of business and throw some private sector employees out of work.
“My sense of the two per cent is that it is a tax grab. It has been presented as a sort of dampening impact in terms of the economy, but the question is, isn’t it simply just another tax under another name?” Cobham said.
Stating that foreign exchange was not exported without approval from the Central Bank, Cobham said if the measure were designed to dampen the thirst for foreign exchange it was simply just an extension of the National Social Responsibility Levy (NSRL), which was designed for the same purpose.
“If this is going to have a dampening effect it means that this is just simply part of the whole tax cause associated with the implementation. So from my perspective, the only purpose of this two per cent is to increase taxes. Rather than having the NSRL being 15 per cent, they have decided to make that ten per cent and apply two per cent under another heading, but the reality is that it is to increase taxes. That is my sense of the two per cent.”
The former head of the Barbados Bankers Association said missing from the discussion was the impact of the taxes on jobs.
He said there was no doubt that with such a level of taxation there was sure to be impact on economic activity, which would definitely result in some job losses.
“My fear is that the most vulnerable will be the ones that will potentially be hit first in terms of job losses because if you think of the process it is not a linear one
. . . and one of the things that will certainly happen is that by virtue of the overall cost of doing business and the reduced demand, businesses will have to think in terms of how do they survive, and businesses will do something that regretfully Government is not yet prepared to do, and that is cut costs,” Cobham told Barbados TODAY.
“So when businesses start to look at how costs can be cut, wages and salaries will be one of those areas, and you are talking about a reduction of numbers of people employed. So there needs to be an overt conversation on the impact of this Budget on employment in Barbados and I could see where in the private sector some businesses will perhaps fail, some businesses will have to reduce costs, overheads [and] people simply to stay in business and that is going to be a real factor going forward,” he stressed.
The financial services expert also warned that the two per cent tax would likely result in higher charges for Western Union customers due to increased operational costs, which are likely to be passed on.
“The prices are set globally but my expectation is that the cost of foreign exchange in our business will be passed on as expected, and therefore it will make the cost of doing the normal transaction more expensive, as will happen in the commercial bank. So the impact for us will be the same as the commercial bank because we regulate under the same regulatory environment as the commercial bank,” Cobham explained.
Meantime, Cobham welcomed the proposed audit of the foreign exchange dealers to better understand how that side of the industry works, although he was unsure what process the audit would take.