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Bank Interest Levy Act/Tax

How to confuse the public!

By Bennette Roach

BOM Manager Michael Joseph

BOM Manager Michael Joseph

On Wednesday evening August 10, 2016, ZJB Radio in its evening days’ major news broadcast presented a Release dated August 2, 2016, it received from Bank of Montserrat Ltd., whose majority shareholder is the Government of Montserrat. The release titled “Public Education Releases – What is Bank Interest Levy” became the subject of leading news over the next several days, but there was a grave problem, one that may bring a ground swell crashing on the island.

TMR did not receive, not unlike many others, a copy of the Release but we confirm that the Bank withdrew the ‘strangely’ titled release upon concerns leveled by the Government.

The release cited Section 3 of the BANK INTEREST LEVY ACT (Acts 17 of 1978, 10 of 1982 and 6 of 2006):

“Imposition of levy

Premier Donaldson Romeo

Premier Donaldson Romeo

Every Bank shall pay on the first day of July in each year a levy on one half of one per centum of the average deposit balances which shall be computed for the purposes of this section as the average of such deposit balances at the end of each month in the calendar year immediately prior to the year of payment:

The quote in the release ended there, but the section continues to read:

“Provided that within one month of the end of the year of payment the levy for that year shall be recalculated as the average of the deposit balances at the end of each month in the year of payment. If the recalculated levy is greater than the sum already paid as levy by the Bank for the year of payment a further sum representing the difference between the payment and the recalculated levy, shall become due and payable on or before the end of the month following the end of the year of payment.”

This all seems normal enough but the release went on to state:

“All customers should take note that beginning 30 September 2016 the Bank will deduct the applicable levy for onward transmission to the Government Treasury; as follows: Excerpted –

queeley

SPCCU Manager Peter A. Queeley

Savings Accounts – On a quarterly basis, beginning 30 September 2016; each savings account will be charged0.1250%.

Fixed Deposits – At each maturity date, each fixed deposit will be charged the 0.5%.

That in not so brief terms is the essence of the release, which we note to our readers should not have been mentioned again as it was read before the release was recalled.

However, the Government reacted strangely themselves by seeking to absolve themselves of any responsibility for what they considered should not have been the bank’s position on the issue.

Meanwhile, Peter A. Queeley, Manager of the St. Patrick’s Cooperative Credit Union (SPCCU) referred to by ZJB as a Financial Analyst sent in a statement which in essence berated the Government for the Act, which has been observed by other banks and the Royal Bank of Canada, according to our information to the present, waived for the Bank of Montserrat over the years. (See later)

For the benefit of our readers, we present the following which is quite worthy of note:

Section 3A. of the Act re -Power to waive levy – Whenever the Governor in Council (Cabinet) is satisfied that it is just and equitable to waive any levy which is due and payable whether before or after the commencement of this Act, he may by Order waive the said levy in full or part, subject to such terms and conditions as he may deem fit. (Inserted by Act 6 of 2006)

Savings – Section 6. Nothing in this Act shall apply to the Government Savings Bank established under the Savings Bank Act. (This does raise questions as one resident posed to us about the closure of the Savings Bank over two years ago)

Queeley’s statement began speaking about the regional Credit Unions and the 13th Annual OECS Credit Union Summit where there was “a resounding no towards above the line taxation of financial institutions and taxation on a whole of Credit Unions.”  

Queeley continues: “In terms of the implementation of the Bank Interest Levy, “Voodoo Economic and Financial Policy” is how I would describe the Government of Montserrat (GOM) approach to enforcing that particular legislation. At best, the GOM policy stance on the implementation of Bank Interest Levy Act can be described as ill-advised and unrealistic.”

He continues: “The Bank Interest levy Act from my research appears to originate as far back as 1979, with amendments in 1982, 2006 and 2015.

Based on the above, the Bank Interest Levy can best be described as an above the line taxation measure since the levy will be imposed on the financial institution before the calculation of the bank’s net income.”
Then he explains: “Generally, in banking, net income is calculated as (interest income + (plus) other income) – (interest expenses, operational costs, provision for loan losses and diminution of investments and depreciation). The taxes are generally levied on the net income of a financial institution. Therefore, by imposing a bank interest levy, the Government has actually increased the operational expenses of the financial institution, the effects of which I would explain later.”

He goes on more in terms of an opposition politician than claims, to ridicule the actions of the Government in Montserrat and says: “In conclusion, similar to its action to implement the Bank Interest Levy Act, I have noted a recent trend by the GOM to implement or take measures contrary to those that are recommended by its main economic and financial advisor, the ECCB…Finally, the GOM response of “First Call” on the BREXIT issue reflects the fact that the GOM is only focus on budgetary aid and imposing new taxes as opposed to growing the economy thereby developing its own revenue sources.”

The Government’s statement, from the Premier and Minister of Finance, issued August 10, 2016 “Regarding the recent Bank of Montserrat Public Education Release on the bank interest levy”, we believe, was unwarranted since the release withdrawn leaves them to discuss their concerns with the bank’s board/management. It came as a result of the continued attention given to it by the Government Radio Station.

The Statement read: “August 10, 2016 – In recent days, the Bank of Montserrat has issued a Public Education Release, entitled: “What is Bank Interest Levy?”  This has stirred some public concern and there are certain points in the release that require clarification. Accordingly, the Office of the Premier wishes to inform the public and the media as follows:

For almost forty years the Laws of Montserrat have included a Bank Interest Levy Act (which has been on the books since 1979). Section 3(1) of this Act tells us that:

“A Bank shall pay on 1 July in each year a levy of 0.5% of the average deposit balances which shall be computed as the average of the deposit balances at the end of each month in the calendar year immediately before the year of payment.”

Mrs. Venita Cabey, Chairman of the board of BOM

Mrs. Venita Cabey, Chairman of the board of BOM

That is, since 1979, for every EC$ 1,000.00 of deposits on average over the previous year, any bank in Montserrat must pay to Government a tax of EC$ 5.00. (And yes, this is a tax on banks, not a tax on their depositors.)

This applies to all banks, and this law has been on the books for almost forty years.

In 2015, because of an inquiry by the Bank of Montserrat in 2012, Section 3(1) was adjusted by our Legislative Assembly. The tax was uncontroversial, and this was evidenced on Tuesday, May 26th 2015, when all members of the Legislative Assembly (Government and opposition) supported the bill.

The 2015 amendment was done to make it quite clear that the required levy is 0.5% of the average deposit balances rather than on 0.5% of the average deposit balances. The correct method of working out the average deposit balances remains the same: banks are to calculate the average of deposit balances at the end of each month for the previous twelve months.

However, for some years (1993 to 2013), Bank of Montserrat was under supervision by ECCB, and did not pay the levy. It is no longer under such supervision, and so Bank of Montserrat — like any other bank here in Montserrat — is required to pay this longstanding tax. It has been taking steps to do so.”

“…However, there are other means by which the Bank could have covered its tax obligation.  Government has therefore begun discussions with the bank to find an alternative solution, one that avoids a burdensome situation for depositors. We expect that the Bank will reconsider its plan to pass the levy on to depositors and that it will inform the public shortly.  The Government will continue to monitor this process.”

Let us continue to work together for the good of Montserrat.

But this statement exposes a serious shortcoming of the Government, who should have instructed their radio station to correct the release that had been retracted, since the bank so indicated.

We waited and after some research obtained the following, offering independent comment and clarification in response to the situation.

The writer deals with the Government’s Statement repeating,” Yes, the tax was uncontroversial, and so on Tuesday, May 26th 2015, when he spoke on the bill, the Leader of the Opposition stated: “I rise in support of the motion . . .”

This was the result of an inquiry by the Bank of Montserrat in 2012, Section 3(1) was adjusted by our Legislative Assembly; with the support of the Opposition. Yes, the tax was uncontroversial, and so on Tuesday, May 26th 2015, when he spoke on the bill, the Leader of the Opposition stated: “I rise in support of the motion . . .”

It was done to make it quite clear that the required levy is 0.5% of the average deposit balances rather than on 0.5% of the average deposit balances. The correct method of working out the average deposit balances remains the same: banks are to calculate the average of deposit balances at the end of each month for the previous twelve months.

However, for some years (1993 to 2013), Bank of Montserrat was under supervision by ECCB, and did not pay the levy. It is no longer under such supervision, and so Bank of Montserrat — like any other bank here in Montserrat — is required to pay this longstanding tax. It has been taking steps to do so.

Now, were the tax inherently onerous, over the past 40 years or so, there would have been clear, vigorous objections. The discussion behind the amendment suggests, no there is no institutional memory of such objections.

Credit Unions are not faced with the tax, only ‘banks’. There needs to be no case.

In that light, we now see Queeley:

In terms of the implementation of the Bank Interest Levy, “Voodoo Economic and Financial Policy” See above but add: “ At worst, the GOM policy stance can be described as a downright demonstration of economic and financial incompetence at the highest level with no other effect but cripple indigenous banking, destabilize the financial services industry and further retard a declining economy.”

This seems to be a stirring of utterly unnecessary polarisation, manifesting an unjustified spirit of contempt.

First, the debate was in 2015, so if there is economic incompetence made obvious by the CU case, this includes, RTM, leader of Opposition and the immediate past Min of Finance.

The levy would have effect that it raises funds for goods and services, some 2 – 3 percent of overall locally raised revenues; in a context where DFID rightly expects us to do all we can to raise such.

Where also, there is a provision for relief where a bank is in hardship. Which BoM was for 20 years, and was relieved of the levy for that time. Meanwhile Barclays must have paid while it was here, and Royal to0, (also Chase Manhattan, Barclays while on the scene) which has continued to pay. Looks like up to now if the quarterly report is on two banks. (Do other institutions qualify, which ones?)

To come out of detention BoM paid off $ 2.58 million, so it must have reckoned on being able to sustain the levy. Otherwise it would have made a case for continued support by withholding the levy.

Besides, on the logic of the case, such a levy is before profits.

So it would add to costs, reducing exposure to taxes on corporate profits, the income of the corporation for taxing purposes. So, on the circumstances as I see them, this is partly at least offset in corporate taxes being lower than otherwise. However, because of the structure of the levy, it is harder to avoid this tax, as it is on an objective value, deposits at ends of months, so you cannot manipulate deposits at some given time. Likewise, as it is on assets, it is a capital tax, it is not subject to the various ways corporations engineer what profits they report, and where they report it. This is a tax that has to be paid here.

(Do, check to clarify what seems so on the face.]

Never mind, on separate grounds, the Queeley objection as cited is clearly without serious merit.

For, it is delivered in a harshly polarising voice, and in a tone of dismissive, sneering contempt that he does not even seem to be aware indicts his own opposition leader. So, is our leader of the opposition guilty of “economic and financial incompetence at the highest level” and is he part of the reckless action that has “no other effect but cripple indigenous banking, destabilize the financial services industry and further retard a declining economy”?

Whatever Queeley’s answer, it does him and the Opposition no credit.

So, this needs to be reckoned with in public discussions.

See: www.themontserratreporter.com for the full statements.

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How to confuse the public!

By Bennette Roach

BOM Manager Michael Joseph

BOM Manager Michael Joseph

Insert Ads Here

On Wednesday evening August 10, 2016, ZJB Radio in its evening days’ major news broadcast presented a Release dated August 2, 2016, it received from Bank of Montserrat Ltd., whose majority shareholder is the Government of Montserrat. The release titled “Public Education Releases – What is Bank Interest Levy” became the subject of leading news over the next several days, but there was a grave problem, one that may bring a ground swell crashing on the island.

TMR did not receive, not unlike many others, a copy of the Release but we confirm that the Bank withdrew the ‘strangely’ titled release upon concerns leveled by the Government.

The release cited Section 3 of the BANK INTEREST LEVY ACT (Acts 17 of 1978, 10 of 1982 and 6 of 2006):

“Imposition of levy

Premier Donaldson Romeo

Premier Donaldson Romeo

Every Bank shall pay on the first day of July in each year a levy on one half of one per centum of the average deposit balances which shall be computed for the purposes of this section as the average of such deposit balances at the end of each month in the calendar year immediately prior to the year of payment:

The quote in the release ended there, but the section continues to read:

“Provided that within one month of the end of the year of payment the levy for that year shall be recalculated as the average of the deposit balances at the end of each month in the year of payment. If the recalculated levy is greater than the sum already paid as levy by the Bank for the year of payment a further sum representing the difference between the payment and the recalculated levy, shall become due and payable on or before the end of the month following the end of the year of payment.”

This all seems normal enough but the release went on to state:

“All customers should take note that beginning 30 September 2016 the Bank will deduct the applicable levy for onward transmission to the Government Treasury; as follows: Excerpted –

queeley

SPCCU Manager Peter A. Queeley

Savings Accounts – On a quarterly basis, beginning 30 September 2016; each savings account will be charged0.1250%.

Fixed Deposits – At each maturity date, each fixed deposit will be charged the 0.5%.

That in not so brief terms is the essence of the release, which we note to our readers should not have been mentioned again as it was read before the release was recalled.

However, the Government reacted strangely themselves by seeking to absolve themselves of any responsibility for what they considered should not have been the bank’s position on the issue.

Meanwhile, Peter A. Queeley, Manager of the St. Patrick’s Cooperative Credit Union (SPCCU) referred to by ZJB as a Financial Analyst sent in a statement which in essence berated the Government for the Act, which has been observed by other banks and the Royal Bank of Canada, according to our information to the present, waived for the Bank of Montserrat over the years. (See later)

For the benefit of our readers, we present the following which is quite worthy of note:

Section 3A. of the Act re -Power to waive levy – Whenever the Governor in Council (Cabinet) is satisfied that it is just and equitable to waive any levy which is due and payable whether before or after the commencement of this Act, he may by Order waive the said levy in full or part, subject to such terms and conditions as he may deem fit. (Inserted by Act 6 of 2006)

Savings – Section 6. Nothing in this Act shall apply to the Government Savings Bank established under the Savings Bank Act. (This does raise questions as one resident posed to us about the closure of the Savings Bank over two years ago)

Queeley’s statement began speaking about the regional Credit Unions and the 13th Annual OECS Credit Union Summit where there was “a resounding no towards above the line taxation of financial institutions and taxation on a whole of Credit Unions.”  

Queeley continues: “In terms of the implementation of the Bank Interest Levy, “Voodoo Economic and Financial Policy” is how I would describe the Government of Montserrat (GOM) approach to enforcing that particular legislation. At best, the GOM policy stance on the implementation of Bank Interest Levy Act can be described as ill-advised and unrealistic.”

He continues: “The Bank Interest levy Act from my research appears to originate as far back as 1979, with amendments in 1982, 2006 and 2015.

Based on the above, the Bank Interest Levy can best be described as an above the line taxation measure since the levy will be imposed on the financial institution before the calculation of the bank’s net income.”
Then he explains: “Generally, in banking, net income is calculated as (interest income + (plus) other income) – (interest expenses, operational costs, provision for loan losses and diminution of investments and depreciation). The taxes are generally levied on the net income of a financial institution. Therefore, by imposing a bank interest levy, the Government has actually increased the operational expenses of the financial institution, the effects of which I would explain later.”

He goes on more in terms of an opposition politician than claims, to ridicule the actions of the Government in Montserrat and says: “In conclusion, similar to its action to implement the Bank Interest Levy Act, I have noted a recent trend by the GOM to implement or take measures contrary to those that are recommended by its main economic and financial advisor, the ECCB…Finally, the GOM response of “First Call” on the BREXIT issue reflects the fact that the GOM is only focus on budgetary aid and imposing new taxes as opposed to growing the economy thereby developing its own revenue sources.”

The Government’s statement, from the Premier and Minister of Finance, issued August 10, 2016 “Regarding the recent Bank of Montserrat Public Education Release on the bank interest levy”, we believe, was unwarranted since the release withdrawn leaves them to discuss their concerns with the bank’s board/management. It came as a result of the continued attention given to it by the Government Radio Station.

The Statement read: “August 10, 2016 – In recent days, the Bank of Montserrat has issued a Public Education Release, entitled: “What is Bank Interest Levy?”  This has stirred some public concern and there are certain points in the release that require clarification. Accordingly, the Office of the Premier wishes to inform the public and the media as follows:

For almost forty years the Laws of Montserrat have included a Bank Interest Levy Act (which has been on the books since 1979). Section 3(1) of this Act tells us that:

“A Bank shall pay on 1 July in each year a levy of 0.5% of the average deposit balances which shall be computed as the average of the deposit balances at the end of each month in the calendar year immediately before the year of payment.”

Mrs. Venita Cabey, Chairman of the board of BOM

Mrs. Venita Cabey, Chairman of the board of BOM

That is, since 1979, for every EC$ 1,000.00 of deposits on average over the previous year, any bank in Montserrat must pay to Government a tax of EC$ 5.00. (And yes, this is a tax on banks, not a tax on their depositors.)

This applies to all banks, and this law has been on the books for almost forty years.

In 2015, because of an inquiry by the Bank of Montserrat in 2012, Section 3(1) was adjusted by our Legislative Assembly. The tax was uncontroversial, and this was evidenced on Tuesday, May 26th 2015, when all members of the Legislative Assembly (Government and opposition) supported the bill.

The 2015 amendment was done to make it quite clear that the required levy is 0.5% of the average deposit balances rather than on 0.5% of the average deposit balances. The correct method of working out the average deposit balances remains the same: banks are to calculate the average of deposit balances at the end of each month for the previous twelve months.

However, for some years (1993 to 2013), Bank of Montserrat was under supervision by ECCB, and did not pay the levy. It is no longer under such supervision, and so Bank of Montserrat — like any other bank here in Montserrat — is required to pay this longstanding tax. It has been taking steps to do so.”

“…However, there are other means by which the Bank could have covered its tax obligation.  Government has therefore begun discussions with the bank to find an alternative solution, one that avoids a burdensome situation for depositors. We expect that the Bank will reconsider its plan to pass the levy on to depositors and that it will inform the public shortly.  The Government will continue to monitor this process.”

Let us continue to work together for the good of Montserrat.

But this statement exposes a serious shortcoming of the Government, who should have instructed their radio station to correct the release that had been retracted, since the bank so indicated.

We waited and after some research obtained the following, offering independent comment and clarification in response to the situation.

The writer deals with the Government’s Statement repeating,” Yes, the tax was uncontroversial, and so on Tuesday, May 26th 2015, when he spoke on the bill, the Leader of the Opposition stated: “I rise in support of the motion . . .”

This was the result of an inquiry by the Bank of Montserrat in 2012, Section 3(1) was adjusted by our Legislative Assembly; with the support of the Opposition. Yes, the tax was uncontroversial, and so on Tuesday, May 26th 2015, when he spoke on the bill, the Leader of the Opposition stated: “I rise in support of the motion . . .”

It was done to make it quite clear that the required levy is 0.5% of the average deposit balances rather than on 0.5% of the average deposit balances. The correct method of working out the average deposit balances remains the same: banks are to calculate the average of deposit balances at the end of each month for the previous twelve months.

However, for some years (1993 to 2013), Bank of Montserrat was under supervision by ECCB, and did not pay the levy. It is no longer under such supervision, and so Bank of Montserrat — like any other bank here in Montserrat — is required to pay this longstanding tax. It has been taking steps to do so.

Now, were the tax inherently onerous, over the past 40 years or so, there would have been clear, vigorous objections. The discussion behind the amendment suggests, no there is no institutional memory of such objections.

Credit Unions are not faced with the tax, only ‘banks’. There needs to be no case.

In that light, we now see Queeley:

In terms of the implementation of the Bank Interest Levy, “Voodoo Economic and Financial Policy” See above but add: “ At worst, the GOM policy stance can be described as a downright demonstration of economic and financial incompetence at the highest level with no other effect but cripple indigenous banking, destabilize the financial services industry and further retard a declining economy.”

This seems to be a stirring of utterly unnecessary polarisation, manifesting an unjustified spirit of contempt.

First, the debate was in 2015, so if there is economic incompetence made obvious by the CU case, this includes, RTM, leader of Opposition and the immediate past Min of Finance.

The levy would have effect that it raises funds for goods and services, some 2 – 3 percent of overall locally raised revenues; in a context where DFID rightly expects us to do all we can to raise such.

Where also, there is a provision for relief where a bank is in hardship. Which BoM was for 20 years, and was relieved of the levy for that time. Meanwhile Barclays must have paid while it was here, and Royal to0, (also Chase Manhattan, Barclays while on the scene) which has continued to pay. Looks like up to now if the quarterly report is on two banks. (Do other institutions qualify, which ones?)

To come out of detention BoM paid off $ 2.58 million, so it must have reckoned on being able to sustain the levy. Otherwise it would have made a case for continued support by withholding the levy.

Besides, on the logic of the case, such a levy is before profits.

So it would add to costs, reducing exposure to taxes on corporate profits, the income of the corporation for taxing purposes. So, on the circumstances as I see them, this is partly at least offset in corporate taxes being lower than otherwise. However, because of the structure of the levy, it is harder to avoid this tax, as it is on an objective value, deposits at ends of months, so you cannot manipulate deposits at some given time. Likewise, as it is on assets, it is a capital tax, it is not subject to the various ways corporations engineer what profits they report, and where they report it. This is a tax that has to be paid here.

(Do, check to clarify what seems so on the face.]

Never mind, on separate grounds, the Queeley objection as cited is clearly without serious merit.

For, it is delivered in a harshly polarising voice, and in a tone of dismissive, sneering contempt that he does not even seem to be aware indicts his own opposition leader. So, is our leader of the opposition guilty of “economic and financial incompetence at the highest level” and is he part of the reckless action that has “no other effect but cripple indigenous banking, destabilize the financial services industry and further retard a declining economy”?

Whatever Queeley’s answer, it does him and the Opposition no credit.

So, this needs to be reckoned with in public discussions.

See: www.themontserratreporter.com for the full statements.