Rose­marie Sant

High­er food prices, loss of in­vestor con­fi­dence and a wors­en­ing of the coun­try's al­ready bleak for­eign ex­change sit­u­a­tion are among the reper­cus­sions T&T could face if the Tax In­for­ma­tion and Ex­change Agree­ment (TIEA) Bill, 2016, is not de­bat­ed and passed by Par­lia­ment ahead of the Sep­tem­ber 30 dead­line for For­eign Ac­count Tax Com­pli­ance Act (FAT­CA) leg­is­la­tion to take ef­fect.

That was the grim pic­ture paint­ed by econ­o­mists Vaalmik­ki Ar­joon and In­dera Sage­wan-Al­li who both warned that non-com­pli­ance could ul­ti­mate­ly re­sult in high­er prices for the av­er­age con­sumer.

"This is not a mat­ter that they should be play­ing pol­i­tics with," Sage­wan-Al­li said.

She said many every day trans­ac­tion could be­come most cost­ly and com­pli­ca­tion be­cause FAT­CA af­fects bank to bank re­la­tions.

"If you have a child study­ing, whether it is in the Caribbean or the US, once it in­volves US dol­lars and you want to send mon­ey it is done through an in­ter­me­di­ary bank. If the lo­cal banks are not com­pli­ant then you can­not send the mon­ey," she ex­plained.

Sage­wan-Al­li said with­out com­pli­ance any US trans­ac­tion would be sub­ject to a 30 per cent with­hold­ing tax.

"That is then what you the cus­tomer have to pay. So if you want to wire trans­fer US$100 you will have to pay 30 per cent on that. Does that make any sense?"

Ar­joon said: "The en­tire fi­nan­cial sys­tem is now on pause. Every­one wait­ing to see what will hap­pen."

He de­scribed FAT­CA as "one of the most sig­nif­i­cant pieces of fi­nan­cial reg­u­la­tion­sin his­to­ry.

"The im­pli­ca­tions for the lo­cal econ­o­my is so huge that those in au­thor­i­ty must move swift­ly to en­sure its pas­sage. It does not just af­fect bank­ing and busi­ness, it af­fects every­one."

Ar­joon said ail­ure to pass the Bill, which was be­ing de­bat­ed in the House of Rep­re­sen­ta­tives yes­ter­day, would ul­ti­mate­ly re­sult in high­er food prices.

"It could mean that busi­ness­es would not be able to get prod­ucts from abroad re­sult­ing in short­ages and high­er prices. There would be an in­abil­i­ty to pay for goods and ser­vices.

"We are an im­port in­ten­sive econ­o­my and in or­der to pay for goods glob­al­ly busi­ness­es have to pay through the banks. If the leg­is­la­tion is not passed they will not be able to pay on time."

He said the rip­ple ef­fects in­clude busi­ness­es be­ing forced to down­size and work­ers not be­ing paid on time.

"In the worse-case sce­nario some busi­ness­es may be forced to close down. Cred­it card trans­ac­tions will be af­fect­ed, this will af­fect per­sons who shop on line, wire trans­fers–your bank may not be able to send mon­ey to your chil­dren study­ing abroad–re­mit­tances will be af­fect­ed and there are im­pli­ca­tions for the al­ready strained for­eign ex­change earn­ings of the coun­try," he said

"A loss of fi­nan­cial re­la­tions with the US could af­fect the day to day econ­o­my."

How FAT­CA fail­ure af­fects you

?Does non-com­pli­ance with FAT­CA af­fect or­di­nary bank cus­tomers?

Yes. Lo­cal banks may even­tu­al­ly be re­strict­ed or cut off from re­la­tion­ships with cor­re­spon­dent banks in­ter­na­tion­al­ly, if they or T&T are not FAT­CA-com­pli­ant. This would re­sult in re­duced avail­abil­i­ty or un­avail­abil­i­ty of every­day bank­ing ser­vices we take for grant­ed, such as re­mit­tance ser­vices, wire trans­ac­tions, cur­ren­cy trans­fers and oth­er ser­vices re­quir­ing ac­cess to the US. fi­nan­cial sys­tem. Even if these ser­vices re­main avail­able, the cost of ac­cess­ing them will in­crease if the ap­pro­pri­ate FAT­CA regime is not place.

Will lo­cal busi­ness­es be af­fect­ed?

The ease of do­ing busi­ness in T&T will be af­fect­ed if there is a loss of cor­re­spon­dent bank­ing re­la­tion­ships. The ca­pa­bil­i­ty to pro­vide cer­tain ser­vices will be ad­verse­ly af­fect­ed and ac­cess to trade ser­vices which are in­dis­pens­able to many lo­cal busi­ness­es, will be re­strict­ed or un­avail­able. This will in­crease the cost of do­ing busi­ness in Trinidad and To­ba­go re­sult­ing in re­duced prof­it mar­gins for busi­ness­es in gen­er­al.

Are there any penal­ties for banks that are not FAT­CA com­pli­ant?

Banks that do not com­ply with FAT­CA are sub­ject to a 30 per cent with­hold­ing tax on US. They al­so risk prob­a­ble ter­mi­na­tion of their cor­re­spon­dent bank­ing re­la­tion­ships and jeop­ar­dize their ac­cess to the in­ter­na­tion­al fi­nan­cial sys­tem. Banks that have suf­fered such dis­rup­tions can­not eas­i­ly pro­vide ser­vices to their clients in the ar­eas of trade fi­nance and fa­cil­i­ta­tion and for­eign cur­ren­cy trans­ac­tions. The costs of do­ing busi­ness will in­crease and their prof­itabil­i­ty will de­cline.

Banks can­not ad­e­quate­ly dis­charge their FAT­CA re­port­ing oblig­a­tions with­out es­tab­lish­ment of an ap­pro­pri­ate in­sti­tu­tion­al and leg­isla­tive regime for FAT­CA com­pli­ance at the na­tion­al lev­el. They are re­quired to part­ner with Gov­ern­ment to set up the sys­tems for com­pli­ance and, in par­tic­u­lar, re­port­ing.

What is the im­pact of fail­ure to im­ple­ment FAT­CA on the econ­o­my?

A coun­try that is non-com­pli­ant with FAC­TA runa the risk of ero­sion of com­pet­i­tive ad­van­tage, per­cep­tion of a lack of trans­paren­cy abd the pos­si­bil­i­ty of neg­a­tive im­pact on the lo­cal econ­o­my. The fi­nan­cial ser­vices sec­tor con­tributes ap­prox­i­mate­ly 14 per cent to T&T's GDP. If this sec­tor is ad­verse­ly af­fect­ed by im­po­si­tion of the 30 per cent with­hold­ing tax on many of its fi­nan­cial in­sti­tu­tions and dis­rup­tion of ac­cess to in­ter­na­tion­al fi­nan­cial mar­kets, this will di­rect­ly af­fect an econ­o­my that is al­ready af­fect­ed by de­pressed prices for its en­er­gy com­modi­ties.

What does T&T need to do to im­ple­ment FAT­CA?

As the fi­nan­cial ser­vices hub of the Eng­lish-speak­ing Caribbean, T&T has im­por­tant re­spon­si­bil­i­ties in con­clud­ing an In­ter-gov­ern­men­tal Agree­ment (IGA) with the Gov­ern­ment of the Unit­ed States to cov­er mat­ters re­lat­ing to the role of the Board of In­land Rev­enue, the gov­ern­men­tal agency which will have au­thor­i­ty to re­ceive FAT­CA in­for­ma­tion from lo­cal fi­nan­cial in­sti­tu­tions and to re­port that in­for­ma­tion to the IRS.

This coun­try al­so has a re­spon­si­bil­i­ty to en­act leg­is­la­tion for sta­b­lish­ment of a FAT­CA com­pli­ance regime that will pro­vide for the oblig­a­tions of fi­nan­cial in­sti­tu­tions and the Board of In­land Rev­enue re­gard­ing FAT­CA in­for­ma­tion on clients and the se­cure and ac­cu­rate trans­mis­sion of that in­for­ma­tion to the IRS.

Some of T&T's CARI­COM neigh­bours have al­ready en­act­ed leg­is­la­tion to sup­port the im­ple­men­ta­tion of FAT­CA, in­clud­ing Ja­maica, Bar­ba­dos, The Ba­hamas, St. Vin­cent and St. Kitts and Nevis.

To avoid any ad­verse con­se­quences, con­clu­sion of an IGA must be ac­com­pa­nied by an ap­pro­pri­ate leg­isla­tive regime to sup­port the do­mes­tic en­force­ment of oblig­a­tions un­der the IGA.