1 month ago
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Davendranath Tancoo - THE Bankers Association (BATT) is adopting a wait-and-see approach to the budget's promise of a new tax/levy on assets held by banks and insurance companies, according to a BATT statement on October 15.
Finance Minister Davendranath Tancoo on October 13 told MPs that banks and insurance companies have benefited from their own conservative lending practices plus TT's overall favourable monetary conditions, yet the average person still faces "unreasonably high fees and near-zero returns on their savings and investments."
Noting these organisations' large size, profitability and capitalisation, he said they have enjoyed "sustained earnings, high liquidity ratios and strong asset base growth."
Tancoo said a 0.25 per cent levy on the assets of banks and insurance companies will take effect on January 1, 2026 and is expected to raise $575 million per year in revenues.
Prime Minister Kamla Persad-Bissessar was asked if banks might pass on the cost of the levy to customers, at a briefing at the Red House minutes after the budget presentation.
She said, "They may try. They may try. That is why we are in government. We will make sure that does not happen.
"In opposition we talked a lot about the bank fees and whatever. We are ready for them. We are ready for them."
BATT in a budget response on October 15 said it awaited more details and discussion, but hoped the levy would have a minimal impact on banks.
"With respect to the proposed 0.25 per cent levy on commercial banks’ assets, BATT looks forward to engaging with the Ministry of Finance to discuss the mechanics of its implementation vis a vis, exemptions or reduced rates for government securities and inter-bank placements, deductibility of the tax from corporate income tax and threshold-based application.
"The association aims to ensure that the levy minimises negative effects on expansion activities and preserves the stability of the banking sector, while carefully balancing the government’s need for additional revenue with the promotion of sustainable economic growth." BATT said it looked forward to more details on the measures and their implementation.
Consultant: Similar levies in effect in B'dos, J'ca
Former ATTIC board member, Paul Traboulay, expressed his view to Newsday via text, speaking in his private capacity as a consultant.
He said, "Further details will have to be obtained on the specific workings of the proposed asset levy. However similar levies have been enacted in Barbados and Jamaica."
Traboulay say Jamaica’s levy is at a rate of 0.25%, and has applied to the assets of both general and life insurance companies for many years.
He said currently Jamaican insurers must hold at least 70 per cent of their assets domestically.
Traboulay said, "If we implement consistent with the Jamaican approach, the tax would be applicable on all assets held by the insurer with no distinction between foreign or local assets."
Barbados, he said, taxes on assets at a rate of 0.35% but only on domestic assets held in the national currency.
He said, "In Jamaica, the levy is not deductible for corporate tax purposes, and it may be that this is similarly the case on enactment in Trinidad and Tobago."
Traboulay advised that the TT insurance industry must obtain clarity on whether the levy will be only on the assets on insurers domiciled in TT, as distinct from any emergent holding companies under the Insurance Act 2018. Further, will there be any specific asset type exclusions for purposes of the calculation, he mulled.
"It appears at first pass that this additional asset levy will be borne largely by the insurer and may not be passed on the policyholders.
"The industry will have to seek additional clarity on the issues involved while remaining cognizant of the fact that insurance penetration ratios are flattening given the ongoing issues of affordability and availability for many individuals."
Audit firms PriceWaterhouseCooper (PWC) and Ernst and Young (E&Y) did not express any surprise over Tancoo's measures, in each of their post-budget responses.
PWC recalled that in 2018, banks became subject to a 35 per cent corporation tax, higher than most taxpayers on 30 per cent (excluding certain energy sector and insurance companies).
"With the introduction of the asset levy, financial institutions are also being earmarked to contribute more significantly towards revenue collection, given their perceived ability to bear the tax, at a time where the economy is showing signs of sluggishness."
Regarding banks, PWC said after the 2008 financial crisis, financial stability contribution taxes were imposed on the assets or liabilities of financial institutions. Hungary and Slovenia were among the nations that imposed tax on assets, he noted.
"About two decades later, the levying of taxes on bank operations is becoming a popular measure with nations imposing it on liabilities, on assets or on capital. In some quarters, it is seen as a means of offsetting tax distortions caused by the Value Added Tax (VAT) exemption for financial services."
PWC: Insurance premiums may go up
Otherwise, PWC said the last legislative changes in the tax regime for insurers took place in 2021, regarding the capital adequacy ratio concept, based on changes under the Insurance Act, 2018.
"Life insurers benefit from a preferential tax regime, as governments tend to recognise their role as a safety net in society.
"With the introduction of the asset tax, their tax bill and that of general insurers is expected go up.
"The ripple effect on insurance premium will have to be seen."
PWC said the government had the unenviable task of performing a balancing act by enhancing tax collection while stimulating the economy.
"As a shorter-term measure, the levying of taxes on the financial sector was identified as an avenue to generate immediate revenue."
Ernst and Young (E&Y) said through the asset levy, TT has joined "a growing regional consensus on fiscal reform," as already enacted in Jamaica and Barbados.
"Such measures reflect a pragmatic shift, recognising that those with the greatest capacity to contribute should play a more active role in supporting national development.
"It is a policy that balances fiscal necessity with regional precedent."
PWC noted a 0.35 per cent levy in Barbados and 0.25 per cent in Jamaica.
"We await the enactment of the relevant legislation for further details on the asset levy.
"In particular, the class of assets which would be subject to the levy would be of considerable importance. For instance, the question arises as to whether the tax would be applicable on all assets, that is both foreign and domestic, or would be limited to only local assets."
The manner in which the asset base is to be computed will also be critical., PWC said.
"So, for instance, in Jamaica, the rules for determining the asset base provide for certain deductions such as prudential loan loss provisions."
PWC mulled whether the levy would be deductible for corporation tax purposes.
"We note that in Jamaica the asset tax is not allowable as a tax deduction."
PWC concluded, "Left to be seen is the impact, if any, of the asset levy on the cost of credit and services from banks to businesses and other customers."
Port of Spain North/St Ann's West MP Stuart Young expressed scepticism and warned of inflation in a Facebook post titled National Budget 2026 - Smoke and Mirrors.
"The new taxes on LPG, banks and insurance companies and rentals (landlords) will all pass down to the average man by the businesses which means cost of living is going to go up for the average man. It is expected that banks and insurance companies will also pass on the increased cost of the new tax to customers."
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