Good business news for manufacturers and exporters
"THE proposed amendment to the General Consumption Tax (GCT) to introduce a mechanism for manufacturers to claim refunds will make the local producers more competitive." This announcement by President Brian Pengelley of the Jamaica Manufacturers' Association (JMA) is very encouraging.
In a press release of 8th January 2014, Finance Minister Peter Phillips described the beneficial changes to the trade regime to improve the competitiveness of Jamaican goods. In that article he also explained: "Compared with the current incentives system which offers significant and, in some instances, full relief for certain selected industries with higher rates of income tax, this will provide benefits for all businesses." Additional benefits include: "the reduction of corporate income tax from 33.3 per cent and 25 per cent with effect from January 1, 2014. New capital allowances have already been announced in the press, whereby a taxpayer is able to write-off a factory over the useful life of the asset.
At the time of the minister's announcement it was said details of productive inputs to be imported at zero duty are eagerly awaited which should improve export costing. The zero-duty imported products list has not yet been released. For reference, the taxes applied to imports are again listed:
* Basic Stamp Duty
* Additional Stamp Duty
* Container Fees
* Customs Advisory Fee
* Standard Compliance Fee (on behalf of the Bureau of Standards)
* Import Entry Processing Fee
* Environmental Levy
The eighth tax, GCT, at 16.5 per cent is to be refundable.
The seven residual taxes are to be scrutinised, and where a tax is applied on an ingredient raw material for the manufacturer of an export product, that element should be transferred from the export costing to improve the competitiveness. It is not the intention to rescind such a tax, but to re-apply it to an alternative domestic cost centre.
For emphasis, the WTO reference to overcharging imports is repeated from the WTO Trade Policy Review 2010, WT/TPR/S/242 page VIII (2)-9 follows: "Numerous taxes and fees on imports raise border protection markedly and raise the question whether excessive import taxation may be hindering competitiveness. All imports entering Jamaica are subject to a basic stamp duty, and an additional stamp duty is payable on certain items. While Jamaica does not apply fees on containers imported or exported (now applied) or port security fees, it imposes fees for providing specific services." If the WTO language is deciphered, it is plain to see that there is a clear meaning in their text that our imports are overtaxed in some instances.
The relationship between importing for export production is frequently overlooked and sometimes not fully understood. The review of border taxes necessitates greater attention towards zero rating for those materials imported specifically for re-export and certified by the importer as essential ingredients for export production. This does not constitute a demand for abolition of all taxes, but exemption of taxes on export-specific materials designated and certified by the importer for manufacture and export. The basis for this recommendation relates to the internationally competitive pricing for export goods that are being adversely burdened in certain instances. Of prime concern are border taxes applied without due diligence regarding the importance of tax-free materials necessary for internationally competitive pricing of Jamaican products in overseas markets.
The Government's response to the WTO stated, in part: "Achievement under the National Industrial Policy (NIP) page 5: 'Government continues to lend support to the private sector in its effort to build internationally competitive advantage, particularly in those sectors which will serve as catalysts for modernisation of the economy and diversification of the production and export base. Under the NIP various initiatives have been undertaken by the Government to re-examine and restructure the incentive regimes (in progress) with a view to implementing a more flexible and transparent incentive programme to include low interest financing under the Export-Import Bank facility; the elimination of tariffs on non-competing imported materials and capital goods (in progress), and the strengthening of the Modern Industry Programme. These pieces of legislation are designated to promote investment, productivity, international competiveness and industry parity with competitors from other countries enjoying international competitiveness and industry parity with investors from other countries enjoying similar benefits."
The above is a synopsis of the Government's reformed trade strategy now being implemented within the framework of the 2014 Jamaica Trade Policy. The WTO had this to add in their Trade Policy Review: "Tariffs and other duties and charges remain Jamaica's main trade policy instrument. The Government generates a substantial share of its central revenue averaging between 27 per cent and 28 per cent of total tax revenues from tariffs and other charges on imports, which are seen as critical in light of the country's structural fiscal deficit. The Government is committed to scaling back the system of waivers and exemptions on customs duties, with a freeze in granting discretionary waivers on duties and taxes constituting a first step in this process. (This is a work in progress) Data from the Jamaican authorities suggest that the cost of various waivers amounted to more than half of trade tax revenue in 2007, and over one quarter in 2009."
Attention should be paid to trimming imported raw material costs as much as possible, rather than having to increase the final export price that could make an overseas sale redundant.