Gov’t backs off bank withdrawal tax
THE Government yesterday backed down from plans to tax withdrawals from financial institutions and Automatic Banking Machines (ABMs), but replaced it with two new tax measures.
Minister of Finance and Planning, Dr Peter Phillips, caved in under pressure from the Opposition Jamaica Labour Party (JLP) and an expanding number of critical institutions and individuals who opposed the financial transaction tax, and announced the withdrawal of the proposed tax as he closed the 2014/15 Budget Debate.
The financial transaction tax was intended to rake in $2.25 billion of the $6.7 billion the Government needs to fill a gap in the primary surplus target under its Extended Fund Facility with the International Monetary Fund (IMF).
Phillips replaced the tax with two new revenue measures, affecting non-resident activities, which are expected to rake in $2.3 billion.
The first of the two measures is a 15 per cent withholding tax on insurance premiums paid to non-residents by Jamaicans residents.
He said that, as part of their tax management strategy, large Jamaican insurance companies have been increasingly purchasing insurance from overseas insurance companies.
He said that a common tax-avoidance scheme employed by these firms is to create a captive insurance company in an offshore jurisdiction. The minister explained that "the captive (insurance company) charges the local operation an insurance premium", which is treated as an expense and is totally deductable from Jamaican corporation income tax.
"The imposition of the 15 per cent tax on such payments will immediately mitigate the benefits these captive arrangements enjoy, and increase tax compliance," Phillips told the House.
He assured that the proposal will exempt local registered insurance companies from the tax, and would not penalise the payment of reinsurance premiums.
The second measure was a modification of the General Consumption Tax (GCT) on imported services.
Phillips said that the GCT originally included a tax on imported services, but that this was amended in 2003 to strengthen the mechanism for the effective collection of the tax. He said that the Cabinet, in 2009, had detected loopholes and sought to address them through amendments to the law, which were not implemented then. The Government will now go forward with the implementation.
He explained that, unlike imported goods, most services imported into Jamaica do not attract GCT, and local registered taxpayers who provide similar services are at a disadvantage because they have to pay the tax.
He said that the absence of the GCT on imported services encourages domestic consumers to substitute imported services not subjected to GCT for domestically supplied services which are subjected to the tax.
He said that the move will remedy the imposition of GCT on imported services, and stem future revenues losses from that source.