Concern raised over legislation

ECONOMIST Jeremy Stephen is warning that if commercial banks’ suspension of real estate-related transactions is prolonged, not only will the financial sector be negatively affected, but there is the possibility that the economy can shut down.

Describing the matter as one that needs to be dealt with urgently, Stephen is advising the ruling Freundel Stuart administration to meet at the round table with the banks, to discuss the lack of clarity on the processes involved in the issuance of a tax clearance certificate by the Barbados Revenue Authority (BRA).

“Government needs to deal with this very quickly. I would say post haste. I would say this is even more important than the Budget, to be honest. If you could suspend the Budget by a week and deal with any resolutions right now, you need to do it.

“This can shut down an economy, literally, over the next couple of months, because there is a knock on effect. This is urgent. I don’t even know how to express how urgent this thing is,” Stephen told The Barbados Advocate yesterday.

The amended legislation states that those wishing to obtain a tax clearance certificate to facilitate a conveyance of land must pay all taxes, interest and penalties accrued under the Land Tax Act, Cap. 78A. People are also required to repay all input taxes in accordance with Section 48 (4) of the Value Added Tax Act, Cap.87, where such tax was previously allowed under Section 46 (2) of that Act.

President of the Barbados Bankers’ Association (BBA), Donna Wellington, reported that there was lack of clarity on the processes required to comply with the Act, indicating that as a result, commercial banks have been experiencing significant delays in disbursement of mortgages and other credit facilities that require security over real estate.

Wellington said the delays are currently impacting an aggregate of approximately 330 transactions, with an estimated value of $221 million.

“Considering where we are, if this thing drags out, you can expect not just a significant downturn, because that would mean the banks won’t make money from loans.

“It would also mean, that the savings side would also be affected, and interest rates would need to be cut even further. So if this continues to drag out, don’t be surprised if you see interest rates like 0.01 per cent,” Stephen said.

The Immediate Past President of the Barbados Economics Society said it must be noted that banks make a significant amount of money through real estate loans, “and they use the interest from that and the liquidity they get from the savings deposits to lend in other categories”.

“So if it is that you stop making money in your largest category, then it means that the other categories may suffer. They may try to lower interest rates and that may force more people to take some money out, or may not want to save,” he explained.

The trained business and financial consultant, who also described the banks’ decision as “strong”, said he believes it may not work out to be a good business decision in the short run, “but I cannot fault an industry for wanting clarity, especially when it has to do with a significant piece of their business”.

“This tax clearance would add a lot more to the processing times and what’s not. And in an environment where they are not really making much money on loans, basically making profits by cutting an immense amount of cost, it would trigger the behaviour that you would expect.

“But, for them wanting to seek clarity, don’t blame them, but I don’t know about the timing of it. I think they should have done it a bit earlier,” Stephen said. (AH)