Stop howling at Junior Market

Exchange offers no free ride


Sunday, November 27, 2011

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THOSE who snarl at company tax incentives ignore the fact that corporate taxes account for less than 10 per cent of the island's J$287.2-billion annual revenue. And like hungry wolves, many have pounced on the 10-year tax holiday offered to the small to medium enterprises that list on the Junior Stock Market. Yet, they are missing the point.

Consider this. As a result of competitive pressures, for the last two financial years Carib Cement has lost money. Given our current tax regime, Carib Cement is able to carry forward nearly $685 million in tax credit resulting from its performance in 2010. This, I would argue is in multiples of what the government has foregone from the new companies listed on the Junior Market.

It should also be pointed out that outside of the Junior Market; there is no way to gauge taxpayer return on investment from incentives. Do tax payers have a transparent way to track the benefit of preferential tax rates given to building societies, farmers or movies shot on location in Jamaica?

There are approximately 12 incentive acts covering almost every major industry, from mining to motion pictures with tax holidays that range from five years to 10 years. There is the Foreign Sales Corporation Act; the Urban Renewal Act; the Hotel (Incentives) Act; the Export Industry Encouragement Act; the Resorts Cottages (Incentives Act); the Jamaica Export Free Zones Act; the Shipping (Incentives) Act; the Industrial Finance Companies (Income Tax Relief) Act; the Jamaica National Heritage Trust Act; the Bauxite & Alumina Industries Encouragement Act; the Petroleum Refinery Encouragement Act; the Approved Farmer Status; and the Venture Capital and Accelerated Depreciation Act.

Sniffing around these various Acts, we find it interesting to note that these companies are not required to take on new shareholders; abide by any disclosure rules or; take on outside board members or have their financial information go public.

The Junior Market is structured to penalise firms who fail to move forward in years 11 to 15. Should the Lasco affiliated companies or any other of the 13 listed companies become delisted or run afoul of JSE rules at any point during the 10-year tax concessionary period and five years thereafter, the firm is liable to the people of Jamaica for taxes foregone during and up to five year after the tax concession ends. The Junior Market offers no free rides.

In order to compare apples with apples -- we advocate that all companies that get tax benefits to have their financials published. Or better yet, instead of baying at the moon, we suggest that detractors push for all companies who get any government tax incentive become a public firm.

Yet, the Junior Market, described by many as a "howling success" has been howled at the loudest. "Unfair!" some bawl. "Tax incentives should only be offered to start- ups" others say. So I ask, what is a start-up? Is it the unknown, untested company that has no brand recognition in the market place?

Or can we stretch the definition to consider reasonably known companies that were constrained from growing by debt but had a product that investors could put their faith in and their money? By having a Junior Market, brokers in Jamaica have raised $1 billion in new funding since October 2009 to present. There are now 13 companies with stronger capital bases, expanded brand recognition and minority shareholders that watch every move.

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