Economist Jeremy Stephen says he is not at all surprised by the latest move by Government to delay implementation of its controversial foreign exchange fee (FXF).
However, given the current setback, he is warning Barbadians to brace themselves for an even longer period of austerity than what was originally envisaged.
Last month, Minister of Finance Chris Sinckler revealed a $542 million package of belt-tightening measures, aimed at wiping out the entire national deficit of $537.6 million in less than a year.
However, Sinckler’s Budget presentation was immediately met with public outcry, with Stephen standing on the side of those with strong concerns that the measures – which also included a hike in the National Social Responsibility Levy from two to ten per cent – would make it more challenging overall to do business in Barbados.
Addressing an international business seminar earlier this month, the noted economist had also observed that while the measures were due to take effect here on July 1, the process of implementation had not yet been spelt out by Government.
Yesterday’s announcement by the Central Bank of a two-week delay to the implementation of the FXF has therefore come as no surprise to him, given that, as he puts it, neither the Central Bank nor the commercial banks had the systems in place to collect the levy.
“From the beginning it seemed a little bit enthusiastic for the Ministry of Finance to signal that the collection would begin on July 1,” he told Barbados TODAY, adding that based on his understanding of the systematic issues that commercial banks tend to have, he was “not encouraged” by the quick implementation date.
“A lot of banks have legacy systems that take some time for one to make changes to the accounting for the banks themselves or even to implement collection measures. So, for instance, whenever any new tax is implemented it should take around three months before the entire system is able to account that transaction,” he told Barbados TODAY.
“You also had an issue where the Central Bank has to get systems in place. As it stands, the Central Bank does not have systems in place to collect taxes,“ Stephen added.
In a statement Wednesday, the Central Bank said the measure would now be implemented in two phases beginning with its application to cash, bank drafts and wire transfers on Monday, July 17, 2017, followed by credit, debit and travel cards on September 1.
Acting Governor Cleviston Haynes said the delay would give the Central Bank more time to educate Barbadians about the foreign exchange fee, so that they are clear on what types of transactions it relates to and how it will be applied.
He also made it clear that the FXF, would be applied to the Barbados value of the foreign currency transaction and that “all persons conducting purchases of foreign currency will be required to pay the FXF, except residents and non-residents making payments from their foreign currency accounts, including entities in the international business and financial services sector.
“The FXF has also been exempted from foreign currency sales related to the settlement of transactions for the bulk purchase of petroleum, diesel or jet fuel where documentary evidence has been provided to the authorized dealer,” Haynes added.
However, Stephen said based on the announced changes it was unlikely that Government could still achieve its budgetary target.
“Remember that this [FX] tax measure was supposed to net the Government $70 million and this was done under the assumption that they would have full implementation by July 1 and there would have been no opposition. If I had to leave out the international business community for instance, and the gross FX [charging every transaction that involved exchange as oppose to selling on to private and corporate customers], the fact that implementation is two months off goes to show that they [Government] would not be able to even nearly net that $70 million,” Stephen told Barbados TODAY.
“As a result you could probably expect if there is a next Budget before elections [which are constitutionally due by the middle of next year] that there won’t a roll back of the levy.
“I expect that tax administration would continue as expected into the near future as a result of them not being able to collect the $542 million,” he stressed.