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.