Government's Budget has put Bermuda's banks at a disadvantage against new exempted trust and management companies with which they compete, Bank of Bermuda officials claim.

"The (new corporate services) tax has the strong disadvantage that it is not charged to the new competitors who have in recent years been invited into Bermuda such as the exempted trust and management companies,'' according to Mr. Charles Vaughan-Johnson, president and CEO of the Bank of Bermuda, and Mr.

Eldon Trimingham, chairman of the board.

They made the charge in a letter to shareholders Thursday.

"We face a significant challenge from now on as a result of increased taxation, particularly the imposition by Government in Bermuda in its 1995/96 Budget of a new tax, the Corporate Services Tax Act 1995, on gross revenues derived from services to exempted companies in Bermuda,'' they added.

"As an apparent result of their success, the three banks are now doubly and heavily taxed while the exempted business, competing with us in Bermuda, are untaxed,'' added Mr. Vaughan-Johnson and Mr. Trimingham.

But according to Finance Minister the Hon. David Saul, exempted trust and management companies do pay and banks are overestimating the fees they face.

"The international companies are paying their way now. The tax commissioner, at the behest of the Ministry of Finance, has been working out the administrative aspects of the new tax with the three banks and it is safe to say that the banks are pleasantly surprised that the effect on their revenues is not as serious as they had first expected,'' he said.

"Nobody likes new taxes but we have to raise revenue to pay for the airport,'' he added.

Mr. Vaughan-Johnson and Mr. Trimingham also claimed Government penalised the bank for its success. The Bank of Bermuda made $41.1 million in 1994, up from $35.9 million year earlier.

"The bank has been successful in building its profitability to international standards, the benefit of which is widely shared by 6,000 shareholders of whom 85 percent are Bermudian. The Government's answer to this is to impose total taxes to the bank which, under the latest Budget, have now reached a potential level of 31 percent of our net income, on current figures,'' they commented.

Under the new legislation, 11 of the bank's 14 overseas offices will be taxed at a lower rate in relation to their net income, than Bermuda operations. The exceptions are New York, London, and Luxembourg, according to the letter.

The Bank of Bermuda's overseas operations now account for over half the lending institution's income.

"Government is eroding the competitive position of Bermudian businesses. It is a great pity that, on top of an increase in taxation, including the Bank's licence fee from $750,000 to $1 million per annum, the government chose not to cut its own spending which would have been a welcome contribution to the need to fund the running of the Bases,'' they added.

"The whole weight of the new Corporate Services Tax has been pushed onto an already burdened local international financial service sector which forms a substantial part of our economy,'' they concluded.

Bank of Butterfield president and chief operating officer Mr. Michael Collier last week also slammed Government's new taxes charging they would hurt the Island's competitiveness. He made the comment in a letter to shareholders released Wednesday.