MPs backed legislation doubling foreign currency purchase tax — creating extra costs for customers in Bermuda, according to local businesses.

The Foreign Currency Purchase Tax Amendment Act sees the tax on buying foreign currency jump from 0.5 percent to one percent, giving Government an extra $14.5 million windfall for 2010/11.

This means businesses will have to pay more tax on goods bought overseas — passing that burden onto the consumer — with Butterfield & Vallis claiming it faces paying an extra $350,000 alone as a result of the legislation.

Introducing the debate on the act on Wednesday, Finance Minister Paula Cox said other people affected by foreign currency purchase tax include those paying off credit card balances, buying goods on the Internet or purchasing foreign money to go travelling.

Giving two examples illustrating the impact of the tax increase, the Minister told the House of Assembly:

• somebody making a credit card payment of $1,000 currently has to pay $5 tax; that will increase to $10;

• somebody paying a university tuition bill of $25,000 currently has to pay $125 tax; that will double to $250.

Ms Cox said: "The rate of the tax is being doubled. However, due to the small base of the tax, the impact is not unduly large in effect.

"A good analogy is the weekly shopping list. If the price of bread, or the price of eggs, or the price of milk doubles, the overall impact is not to double the final cost of the total grocery bill. The total percentage change in the overall grocery bill very likely will be less than one percent.

"In the existing climate of low overall inflationary pressure, a 0.5 percent change in the cost of goods and services is not a burden."

Shadow Finance Minister Bob Richards warned the act would lead to "a devaluation of the Bermuda dollar" in the economy.

Mr. Richards said: "The Bermuda dollar we have now buys less foreign currency than what it used to.

"With this one-way devaluation it gives an incentive for people to use Bermuda dollars less and less. A person might say, 'Why should I use this Bermuda dollar? They're purchasing less and less currency. Why don't I just use the US dollar'."

Bermuda Democratic Alliance MP Mark Pettingill said Government should take heed of Mr. Richards' cautionary tale.

Ms Cox responded that there was no question of devaluation, claiming she felt like she was listening to a nursery rhyme that "the sky is falling in".

Former Shadow Finance Minister Patricia Gordon-Pamplin said: "We have just made it a little bit more expensive for families to afford to pay their fees for their children when they go abroad to study."

Mrs. Gordon-Pamplin said many families would also find it difficult paying off the extra tax on the credit card balances. She said the pond is being dredged for cash because of Government's fiscal indiscipline.

The bill was passed by the House.