The tax-free export channel
Since time immemorial, the private sector trade associations have prevailed on the Government to ensure that export manufacturing and exporting are maintained as tax-free sectors which are inextricably linked.
There was encouraging information recently (November 24, 2013) from Minister Peter Phillips that: "There will be a new duty regime which will allow productive inputs to be imported at zero duty." He explained: "Compared with the current incentives system which offers significant and, in some instances, full relief for certain selected industries with higher rates on income tax, this will provide benefits for all businesses." This includes the reduction of corporate income tax from 33.3 per cent to 25 per cent, with effect on January 1, 2014. New capital allowance rules will also be introduced for capital expenditure as at January 2014; for example, a taxpayer is able to write-off a factory building over the useful life of the asset. Details of the productive inputs to be imported at zero duty are eagerly awaited, which should improve export costing.
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 imported materials necessary for internationally competitive pricing of Jamaican products in overseas markets.
Importantly, this growth development factor was referred to in the World Trade Organisation (WTO) Trade Policy Review 2010, WT/TPR/S/242 page VIII (2)-9 as 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 including:
* Basic Stamp Duty-mentioned above
* Additional Stamp Duty-mentioned above
* Container Fees
* Customs Advisory Fee
* Standard Compliance Fee (on behalf of the Bureau of Standards)
* Import Entry Processing Fee
* Environmental Levy
* General Consumption Tax - 16.5%
NB: A domestic tax, notably the General Consumption Tax (GCT), levied at a standard rate of 16.5 per cent, is levied on imports and domestically produced goods.
Considering the above tax burden, it is understandable that our exporters find it very difficult to compete in the international markets. 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. A recent enquiry regarding the possible removal of GCT on imported goods for export manufacture was denied as "impossible". The next day GCT on goods for charitable organisations and organisations providing charitable works was removed.
The Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994, that deals with Customs valuation of imported goods, is not easily understood, requiring careful application by Customs officers as current difficulties demonstrates. Under the WTO Agreement six methods of valuation can be used, the primary one being transaction value -- that is the price actually paid or payable for the imported goods when sold for export to the country importing the goods. Other methods to be used can be the transaction value of identical goods, the transaction value of similar goods, deductive value, computed value, and fall-back method to be applied sequentially starting with the primary method. Acting Commissioner Marlon Lowe confirmed that the WTO method is being used, which he referred to as a "very structured approach".
The response to the WTO by the Government 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 the 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 re-structure the incentive regimes (in progress) with a view to implementing a more flexible and transparent incentives programme to include: low interest financing under the Export-Import Bank facility; the elimination of tariffs on non-competing imported materials and capital goods, and the strengthening of the Modern Industry Programme. These pieces of legislation are designated to promote investment, productivity, international competitiveness, and industry parity with competitors from other countries enjoying international competitiveness and industry parity with investors from other countries enjoying similar benefits."
When introducing the valuation system, the WTO arranged a visit of an expert who conducted seminars on the method of operation, and could possibly be able to repeat such a visit if considered desirable to assist in regularising the application of the valuation system. Such a move would also provide private sector importers with a better understanding of the system that should reduce the number of problems that accompany some imports. The question as to whether an agency business configuration is the most suitable organisation for Customs remains inconclusive.