LAST week I spoke about the benefit of reducing the corporate income tax rate to 25 per cent. It should free up capital to be spent on hiring, increasing worked productivity, retooling to be more competitive or many other things.
It turns out, however, that it could very well be freeing up capital to pay the increased asset tax. One of my regular readers and someone never afraid to challenge me responded last week to ask me why very few commentators have looked at and discussed the implications of the increased asset tax.
He then sent a second e-mail indicating that his auditor said that the proposed increases were going to be serious. For example, a company with assets less than $50,000 currently pays an asset tax of $1,000. Under the new proposal, this company would pay a tax of $10,000.
Yes, a ten-fold increase in taxes at that level. Other levels have seen dramatic increases as well. The tax for asset values above $100 million is currently $35,000 and that would move to $100,000.
Small businesses and entrepreneurs who recently started their firms would now have to pay $60,000 per year as a minimum income tax, whether or not they made profits, and then have to pay an asset tax of another $25,000 or $50,000 (depending on if their assets value between $50,000 and $500,000 or $500,000 and $5 million). This asset tax is also not dependent on profitability.
If this information is indeed correct then Jamaican businesses could not be faulted for looking at the 10 per cent decrease in corporate income tax, add in the move from 10 per cent to 16.5 per cent GCT on their electricity usage plus the imposition of a minimum income tax and add a dramatic increase in the asset tax, then wonder if they should continue to be in business.
With high unemployment among university graduates, these proposals are guaranteed to remove entrepreneurship as a viable option for most people, even though the minimum income tax does not apply to the first year.
My investment firm recently registered a business in Jamaica and if the plan did not involve eventually listing on the Junior Market, then we would have to seriously be considering another Caribbean island instead. Doing business anywhere does usually require that you pay certain fees whether or not your business is profitable but the largest payments are generally income taxes levied on taxable income.
If I make a loss then I pay no income tax. When I finally become profitable then I will pay income taxes, all the while paying the mandatory fees (and paying taxes on the salaries of employees).
The Private Sector Working Group did advocate for removing the asset tax, what some refer to as a nuisance tax. I completely agree with that recommendation and hope that enough Jamaicans speak up so that the current administration follows suit.
The PNP must ensure that it is not seen as anti-business, especially after what happened in the 1990s. My generation is poised to contribute to Jamaican economic growth through entrepreneurship in a big way, especially with the advent of the Junior Market of the Jamaica Stock Exchange.
This asset tax and the increase proposed is a serious threat to our contribution to economic growth and must be reconsidered.
David Mullings was the first Future Leaders representative for the USA on the Jamaica Diaspora Advisory Board. He can be found on Twitter at twitter.com/davidmullings and Facebook at facebook.com/InteractiveDialogue