I commend Peter Phillips on the work that he has done in the Finance Ministry thus far. Our debt to GDP ratio is down, interest rates are not as high as they used to be and inflation is down, but the recent move by the Jamaican government to implement a levy on bank withdrawals is a bad move. It is an anti-business and retrograde move.
Let me explain.
A little bit over a year ago I published on this blog a debit card charge comparison chart for Jamaican banks. You can find that blog post here. The chart has not been updated , but I am certain that bank charges have been adjusted (upwards) since.
To summarise the chart, two of our largest banks, National Commercial Bank ( NCB) and Scotiabank had some of the highest charges, Scotiabank charging $66 JM for each multilink withdrawal while NCB charged $60.34 per withdrawal from a multilink ATM.
In January 2014, the Jamaican government launched an investigation into the fees that commercial banks and credit unions charged, I believe that consensus was that bank fees were too high. See a news release on the issue here .
You can find the ministry paper for the withdrawal levy here.
Side note: Why are we getting scanned copies of ministry papers in 2014? Why can’t we get the original document in PDF format?
Information on the Levy is #3 in the paper. For convenience, see it below:
a) As part of Revenue Measures FY 2014/2015, the House is being asked to approve the introduction of a levy on withdrawals from deposit-taking institutions and encashments from securities dealers.
b) This levy will be chargeable on all withdrawals from deposit taking institutions by means of: -
i. Electronic banking (e-banking)
ii. Point of Sales (POS)
iii. Cheques
iv) Withdrawals – ABM/ATM/ETM or over the counter and;
v Internet transfers (with the exception of transfers between accounts of the same person in the same financial institution)
If you’re withdrawing less than a million JMD from the bank the government will take 0.1% of it.
Between a million and 5 million the government will take 0.09% of it.
Greater than 5 million, but less than 20 million and the government will take 0.075%
Greater than 20 million dollars and the government will take 0.05%
So, if you go to the ATM and you withdraw $1,000 or you pay it at your favorite restaurant the government will take $1.
If you buy $5,000 worth of gas for your motor vehicle and you use your card the government will take $5. Not a big deal, in fact, it’s negligible. Surely you can give your government $1 on every 1,000 up to $999,999.
With close to 1 million Jamaicans unbanked this move still (supposedly) protects the most poor and vulnerable. Great, but not exactly.
The government, understanding how tough things are for their people even moved the personal income tax threshold from $507, 312.00 to $557, 232.00 causing a whopping 12, 823 persons to fall outside the tax base.
On an individual level the levy is in fact negligible, but that that’s not where the real issue is. Inevitably the banks will pass this charge on to their customers via an increase in bank charges, this is fair, but bear in mind, the consensus was that bank fees were already high. Not only will the bank charge you for the actual tax, they’ll charge the customer for the administration involved in paying the government the tax monthly, implementation of the levy etc, so expect increased fees from the banks soon if the levy is not revised or removed.
The second and larger issue. Many llegitimate medium sized and large businesses pass millions of dollars through their respective banks daily, i.e millions of dollars worth of deposits AND withdrawals. Legit businesses that both the poor and middle class utilise. e.g restaurants, gas stations, supermarkets etc.
Here’s a scenario:
John Brown owns a business that deals with a lot of cash (e.g money gram locations, bakeries, supermarkets etc). On a daily basis John deposits 6 million dollars into the bank. John needs 5 million $ to cover his bills daily. So, John would need to withdraw that 5 mil. John (or that transaction) would therefore fall in the 0.09% bracket.
$5,000,000 * 0.09/100 = $4,500. John is paying $4,500 in taxes DAILY. Not a big deal, right? But wait, John operates 300 days out of the year. So, 300 * $4,500 = $1,350,000 in taxes.
John loves his country, but he’s also operating a business and will have no choice but to pass on these charges to his customers, of course prior to this John was struggling with the already high bank charges. This is just one example, but there are many others. There are other consequences, but I think these are the ones that will affect us the most in the short and medium term. The poor and middle class will suffer.
Of all the revenue measures, the government will make the most from the Withdrawal tax ($2.250 billion), but I would encourage them to reconsider and explore more equitable and sensible alternatives.
Feedback is of course always welcome.
Originally published on gordonswaby.com on 2014-04-20 (recovered from the Internet Archive).