A history-making budget

SHAUNA-KAYE GORDON

Wednesday, March 13, 2019

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History was created on 7 March 2019, when Minister of Finance and the Public Service Dr Nigel Clarke made his 2019/20 Budget Presentation in Parliament and announced a $14-billion reduction in taxes.

The key objectives guiding the budget presentation were articulated by the minister as the pursuit of growth with equity, the pursuit of economic independence, and the exploitation of economic opportunities while protecting the poor and vulnerable.

The minister began his presentation expressing gratitude to his family, friends and significant people who had been integral in his development and accomplishment. He commended successive Government administrations for the fiscal discipline that has contributed to Jamaica's current position and acknowledged the role that the Economic Programme Oversight Committee (EPOC) has played in the process.

Dr Clarke focused on abolishing or reducing taxes that he labelled as a nuisance, distortionary, or a hindrance to growth. The proposed tax measures announced and their estimated revenue effects for 2019/20 are outlined in the table above.

The minister is banking that the revenue measures proposed will stimulate economic activity and increase growth.

OVERVIEW OF REVENUE MEASURES

The GCT threshold increased from $3 million to $10 million.

The GCT threshold is the annual gross turnover/revenue level at which a person undertaking a taxable activity is required to register for General Consumption Tax (GCT). GCT registered taxpayers are required to file monthly GCT returns and comply with all aspects of the GCT Act.

Complying with the GCT laws can be administratively burdensome and costly. The announcement of more than a 300 per cent increase in the GCT threshold will be welcomed by small business operators.

Some small business operators may need to conduct a cost-benefit analysis of the merits and demerits of GCT registration as benefits may outweigh the administrative cost of compliance for some business operators.

Non-registered taxpayers are not eligible to claim GCT input credits or refunds and will have to recover GCT incurred on expenses by increasing their selling price or alternatively absorbing the cost. The Government should therefore continue to allow voluntary registration for small operators whose annual revenues fall below the new $10-m threshold.

STAMP DUTY REDUCTION

The current stamp duty regime is complex and cumbersome. Some stamp duties act as a deterrent to conducting business including raising finance, refinancing existing debt, issuing share capital, and undertaking business restructuring.

Replacing a variety of ad valorem rates with fixed stamp rates should alleviate many of these challenges.

REDUCTION IN TRANSFER TAX

The Transfer Tax Act imposes transfer tax on the transfer of certain property, including Jamaican real estate, shares and securities in Jamaican companies. The current rate of transfer tax is 5 per cent of the gross consideration payable for the property (or the market value in certain circumstances). It is proposed to reduce this transfer tax to 2 per cent.

Transfers of real estate which are currently subject to a combined charge of transfer tax and stamp duty of approximately 9 per cent should now fall to 2 per cent (ignoring the $5,000 nominal stamp duty proposed). The minister's expectation is that this will stimulate greater economic activity and in particular property development and real estate activities.

Who would not welcome a 60 per cent reduction in transfer tax?

REDUCTION IN TRANSFER TAX THRESHOLD FOR ESTATES

The current rate of transfer tax imposed on an estate of a deceased person is 1.5 per cent of the value of the estate, after deductions and expenses on the assets of a person who is domiciled in Jamaica at the date of their death. The assets of the deceased are deemed to be transferred at market value at the date of death to the people to whom such property passes.

At present, the first $100,000 of the value does not attract the tax, leading to a great majority of estates being subject to this tax. This has dissuaded people who have inherited land from regularising their land title.

It is proposed to increase this tax-free estate threshold from $100,000 to $10,000,000. This new initiative serves as an incentive to complete the administration of estates and regularise land titles. These regularised land titles can then be used as collateral to secure a loan to develop the property or fund a start-up business, etc.

The benefit is twofold, as it will become easier for the Government to collect property taxes from these properties with regularised titles as people will be more motivated to keep their property ownership in good standing.

PARTIAL ABOLISHMENT

Asset tax is imposed on companies within the meaning of the Companies Act, with certain exceptions, a society registered under the Industrial and Provident Societies Act and other prescribed people.

Taxpayers are classified into two categories, namely, Specified regulated entities (deposit-taking entities regulated by the Bank of Jamaica and securities dealers and insurance companies regulated by the Financial Services Commission) and unregulated people (mainly non-financial institutions).

Asset tax is imposed on specified regulated entities at the rate 0.25 per cent of the value of their 'taxable assets'. The rates payable by non-financial institutions vary based on a scale of asset values, with the tax ranging from a low of $5,000 to a maximum of $200,000. It is proposed to abolish the asset tax payable by non-financial institutions from the year of assessment 2019.

Specified regulated entities shall continue to be liable for asset tax at the ad valorem rate. There are separate annual payment and filing requirements for asset tax. Additionally, no relief is granted as there is a specific prohibition on claiming an income tax deduction for asset tax incurred.

ABOLISHMENT OF MINIMUM BUSINESS TAX (MBT)

The MBT was originally introduced as part of a tax collection effort to collect tax from entities that otherwise were not filing or paying income tax. An annual MBT of $60,000 is required to be paid in two instalments, June and September of each year.

Minister Clarke indicated that the MBT was distortionary and discriminatory emphasising the current obligation of both dormant entities and loss-making businesses to pay MBT. He indicated that the removal is anticipated to reduce costs for small and microbusinesses, align taxation with profitability, encourage greater risk-taking activity and small business formation.

The minister did not indicate that MBT would be abolished for people other than companies' self-employed individuals, for example. Under current MBT rules, individuals are not liable to MBT if their gross revenues from business activities fall below the GCT turnover threshold. Given the proposal to increase this GCT threshold to $10 million per annum, it is anticipated that more such taxpayers will benefit from the increase and therefore should also be able to avoid the MBT. With the abolition of the MBT, Tax Administration Jamaica will need to employ additional measures to enforce compliance by such entities.

Congratulations, Minister Clarke, on creating history. Jamaica optimistically waits to benefit from these measures.

Minister Clarke, now that Johnny has finally secured a formal job, he wants to know when PAYE will be abolished. (Smile)

Shauna-Kaye Gordon, CA, FCCA, MBA is a tax specialist in Jamaica with knowledge and experience in Jamaican tax, international taxation and cross-border transactions. She is a member of PwC's tax management team and is a member of the ACCA.


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