Asset tax for financial institutions to be abolished

Asset tax for financial institutions to be abolished

Jamaica to remain fiscally responsible post IMF

Observer Business Writer

Sunday, September 22, 2019

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Finance and Public Service Minister, Dr Nigel Clarke has committed to abolishing the asset tax, which still remains imposed on financial institutions.

In his first budget presentation back in April, Minister Clarke announced the abolishment of the asset tax payable by non-financial institutions but kept the imposition of the tax on financial institutions.

However, in response to a question from the Jamaica Observer at a press conference at the Ministry of Finance and the Public Service, Heroes' Circle head office last Friday, Minister Clarke committed to abolishing the tax on financial institutions.

The planned abolishment of the tax comes in the midst of his Economic Growth Council, chaired by billionaire and NCB Chairman Michael Lee Chin, identifying the high cost of capital and high banking taxes including the 33 per cent corporate tax and asset taxes among a list of 111 call to action items to spur growth in the economy.

The banking sector, in particular has blamed the asset tax for increasing their operating costs, thereby inhibiting their ability to reduce interest rates to customers which would boost economic activity. Minister Clarke was hesitant to say when exactly the tax will be abolished.

Prompted by Sunday Finance to indicate whether the abolition could come in the next budget cycle in April, Minister Clarke remarked, “that would be very premature now considering that we are just in September.”

Dr Clarke told the contingent of journalists in attendance, “there is a lot of evidence to suggest that the asset tax that was levied on the financial sector under the International Monetary Fund (IMF) Extended Fund Facility has in fact increased the cost of credit and therefore isseen as an impediment to growth.”

The asset tax regime imposed in 2012 by the People's National Party (PNP) government called on the levying on the one hand of a tax regime for non-financial institutions and on the other hand, a tax for financial institutions. The move was designed to raise funds to reduce Jamaica's debt, whilst laying the groundwork for the country's economic recovery programme.

Dr Clarke reminded the press conference that he abolished the asset tax on non-financial institutions, pointing out that when the measure was imposed by the PNP administration, it was meant to be a temporary measure.

“That is certainly our intention (keep the asset tax temporary) but when it will be abolished remains to be seen,” Dr Clarke quipped.

The abolition of the asset tax on non-financial institutions this year will result in a revenue loss of $1.84 billion out of the government's $14.03 billion in tax give back, as a part of measures to stimulate greater business and economic activity and boost growth.

The press conference was called to update the media on Jamaica successfully completing its sixth and final review of its Precautionary Stand-By Arrangement with the IMF, thereby ending its programming with the multilateral institution.

Moving forward Minister Clarke emphasised that his administration would do nothing to compromise the gains made under the economic reform programme with the IMF and would remain fiscally responsible in his management of the country's financial resources. He said this fiscal responsibility framework would be strengthened, awaiting the establishment of Jamaica's independent fiscal council.

He said the legislation to bring the council into being should be before parliament by April next year. Cabinet has already approved the establishment of the fiscal council.

Fiscal councils are permanent, independent, non-partisan institutions that are created by legislation and staffed by competent, experienced and technically proficient people who help to promote economically sustainable fiscal policies across political cycles.

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