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GOB Moves to Adjust the Rates of Business Taxes on Net Interest Income

The Senate today passed a motion authorizing the adjustments on the rates of business tax on net interest income. It’s quite a technical way to say that the government is incentivizing lending in strategic foreign exchange earning sectors including tourism, agriculture and BPO sectors by decreasing the tax. But in areas of personal and distribution loans, those taxes are increased. Minister of State in the Ministry of Finance Christopher Coye explained why this must be done.

Christopher Coye, Senator: “In the banking system in particular we have excess liquidity in excess of $770 million. That is undoubtedly an unprecedented level. We have loans in the banking system of about $2.3 billion so for us to have excess liquidity of almost $800 million that’s almost a third of additional loans that could be in the system stimulating economic activity and generating foreign exchange so it was felt that while we want to incentivize lending in the discussions with central bank it was certainly a preference that we focus on target lending into foreign exchange earning sectors and those sectors include tourism, they include agriculture, they include BPO, sectors which are emerging foreign exchange earnings sector for us. So that’s the gist or the rationale for the approach to this adjustment to the 9th schedule of the income and business tax app. In the same vein disincentivization applies to those areas of personal and distribution loads in particular so that as we focus in on protecting our foreign reserves that we look at local consumption, we incentivize local consumption, we disincentivize the imports intensive areas. In terms of the tax effect all things being equal if there is in fact no incentivized growth in the lending portfolio of the banking system the tax effect would be almost revenue neutral I think marginally $1,000,000 less but if there is an impact that in terms of incentivized new lending we have $770 million that can be loaned out the obvious effect with and increased lending is increased tax collection so that we would be in fact revenue positive.”