will not be charged the controversial 0.25 percent tax on foreign currency purchases when they changed US dollars for their floats.

The tax, which became law on Saturday, affects all foreign currency purchases including money for travel, education and for businesses purchasing imports.

But retailers feared yesterday they would also be charged the tax when they took US dollars to the banks and broke them down into smaller denominations.

Questions put to Ministry of Finance and Bermuda Monetary Authority officials yesterday drew contradictory responses, with a Finance spokesman saying that the tax should be charged and BMA general manager Mr. Malcolm Williams saying it should not.

But Accountant General Mr. James Hannam said later that the tax would not be levied as there was no foreign currency transaction.

"That begs the question that businesses should not legally be giving out US change,'' Mr. Hannam said. "But that is another question.'' Technically it is illegal for the businesses to give out US change, although it is of equal tender and is widely used. US tourists also request change in US dollars and its convenience is a boon for the industry.

Mr. Williams said that the BMA was urging businesses to give out the Bermuda one dollar coin as change instead of US one dollar bills.

"We have issued a letter the Chamber of Commerce restaurants asking them to use the one dollar coin rather than the US one dollar note,'' he said. "We will be further encouraging other businesses.

"We do not want to undermine the tourist market, but we believe there are a lot of unnecessary US dollars floating around. We believe it is not unreasonable for a certain amount of US currency to circulate within the economy but in recent times there has been an excess.'' Mr. Bobby Rego, chairman of the Chamber of Commerce retail division, said some businesses had been better than others in releasing the Bermuda dollar coins.

As the coins became more accepted, more businesses were using them, he said.

One other businessman, who asked not to be identified, said the coins were difficult to use because there was no pockets in cash registers for them.

Bank customers' transactions will be affected from today. It will mean a tax of 25 cents for every $100 purchase.

For those buying $3,000 worth of travellers' cheques there will be a $7.50 deduction.

Investments abroad, however, will, continue to attract the current 10 percent taxation rate.

Government, the Bermuda Monetary Authority, and banks are exempt from the new Foreign Currency Purchase Tax.

A spokesman for Government's Department of Information Services said the exemption would also apply in another area.

"It will also apply to remittances, with the permission of the Controller of Foreign Exchange, of premium income by a local insurance company or nonresident insurance companies or of pension contributions by a local pension fund.''