THE issue of granting tax breaks and discretionary waivers to the local tourism sector has generated much-heated debate with the Government being told by the IMF that it has to put a stop to this practice as a part of prior-action requests in preparation for inking an agreeement with the multilateral agency.
The cash-strapped administration must now find ways to generate more revenues and is turning its eyes to its most potent earners, particularly the tourism sector.
Dimitris Kosvogiannis, country manager of the Fiesta hotel resort which resides in Hanover, is of the view that while the Government finds itself on the horns of a dilemma and must now find ways to bolster its treasury, it must take particular care to maintain and ensure the viability of the industry that consistently provides revenue and macro-economic development for Jamaica.
"I spoke with a national newspaper last week on the subject of evaluating taxes and other expenses levied on our industry, which has led to much misunderstanding and confusion. I think this is an opportune time to clear up the prevailing ambiguity and unequivocally state our position.
"There are two pillars that must continue to be the bedrock of the government's fiscal and economic planning. Firstly, tourism is the primary revenue earner of the country and by its very nature provides jobs and economic opportunities through capital investment.
"Secondly, the country is heavily indebted with a debt to GDP ratio of 140 per cent. Its debt is about $1.7 trillion. This reality cannot continue indefinitely and must be addressed by the Government expeditiously. The IMF has made this clear and has stipulated that this is a pre-condition of granting Jamaica a loan. However, in addressing its debt problem, the government must be mindful not to damage the first pillar which is the lynchpin of the Jamaican economy."
Last year, a study commissioned by the Jamaica Hotel and Tourism Association (JHTA) conducted by Oxford Economics entitled 'Tourism as a driver of Jamaica's economic development," revealed that the tourism sector contributed $229 billion to the national coffers representing 19.5 per cent of the total output of the economy.
Underscoring the importance of tourism to the Jamaican economy was the report's findings that tourism drives 15 per cent of all construction, 10 per cent of the finance and banking sector, 20 per cent of manufacturing, and 21 per cent of utilities.
Tourism is becoming the fastest-growing industry in Panama. According to statistics provided by the Panama Tourism Bureau, IPAT, in 2006, the tourism industry contributed US$1.45 billion to the country's economy, representing 9.5 per cent of Panama's total GDP. By comparison, the Panama Canal generated US$1.08 billion
So what does Panama do to bolster its fast-growing tourism sector?
It created Special Tourism Zones which can receive multiple tax exemption holidays, which include:
*Property tax exemptions including land
*Income tax exemption for a period of 15 years
*20-year exemption from import taxes, including the sales tax (five per cent)
*20-year income tax exemption originated by the interests charged by creditors in the tourism activity investment
*Exemption from liens due to the use of docks or airports built by the company
What is the end result of these incentives for the tourism sector in Panama?
Last year, tourist arrivals increased by seven per cent over the first nine months of the year compared to the same period in 2011. This spelt 1.5 million tourists visiting the country during that period according to the Panama Tourism Authority. As for foreign earnings, the country received US$1.8 billion representing a 19 per cent increase.
Country manager for the Fiesta Hotel Group in Jamaica Dimitris Kosvogiannis said: "Our company does not differ or in no way deviate from the position taken by the sector. The Jamaica Hotel and Tourism Association (JHTA), when it comes to concessions, tariffs or other governmental waivers, aimed at creating additional investment in the country. We believe that the sustainability of the industry should be of paramount importance."
The tourism sector believes that the incentives that the Government and the industry agree upon should be made into law.
The incentives under the Hotel Incentives Act and the Resort Cottages Encouragement Act are deemed to be critical to keep investments coming into the country.
Kosvogiannis maintains that the Jamaican Government must insist in its necessary negotiations with the IMF and other multilateral agencies, that any agreement arrived at must not in any way cripple the ability of the Jamaican tourism industry to prosper.
"We are not saying that the current tax regime can remain in place with indiscriminately granted waivers doled out for all sectors. We do feel that the government is too generous in that regard, particularly to entities outside the tourism sector.
"All too often we see [that] the beneficiaries of a business that derives benefits from a tax regime are the owners with no collateral impact going to the good of the country. This should be reviewed and modified."
The hotel boss of the largest Spanish hotel in the country added that Fiesta would like to see additional incentives applied to the operational side of the hotel business which ultimately redound to the financial welfare of the country.
"The current tax regime will not pull us out of this current crisis. The Government has to be more strategic in its approach and protect industries that continue to provide growth like tourism.
"We caution that measures taken as a short-term panacea can ultimately damage the economy in the long term," said Kosvogiannis.