Omar Davies’ budget presentation drew pluses and minuses from the private sector, including a strong warning that consumers would face an eight per cent price increase in locally manufactured goods, as a result of the four per cent cess on imports.

Jamaica Manufacturers’ Association (JMA) vice-president, Simon Roberts, estimated the four per cent cess on imported goods, inclusive of raw materials and capital goods, would drive up consumer prices by eight per cent on manufactured goods.

Explaining the eight per cent figure, Roberts told the Sunday Observer: “Approximately 50 per cent of the cost of production goes toward raw material, which is now being increased by four per cent. And by the time you add on the various margins to the wholesaler and retailer, you are up to eight per cent.”

Quick responses to Davies’ presentation also came from Beverley Lopez, the president of the umbrella Private Sector Organisation of Jamaica (PSOJ), who supported the JMA’s concerns about the impact of the cess.

Lopez, emerging out of a meeting of the PSOJs executive and economic committee, contended that the tax package, especially the four per cent cess on imports, would affect producers negatively and was an area “of real concern to us and could have contractionary effects”.

It was also “difficult to compute” as businesses finalised their income taxes at the end of the year and the tax became effective on May 1, she said. “We definitely need a word from the minister as to how this will work,” she said.

Davies introduced the four per cent cess on all imports as part of new tax measures to help finance the country’s $263 billion budget this fiscal year, as he opened the 2003-4 budget debate in Parliament Thursday.

The cess, he said, would be treated as a credit against income tax where goods were imported for business purposes. Taxpayers would be able to claim credit for the cess against their income tax liability for the year in which the cess was paid.

But the JMA’s Roberts sees a weakness in that system. “You only pay income tax when you make a profit,” he said. “What happens when you don’t make a profit? Do you still get back the four per cent charged?” he queried.

Roberts also argued that the levy would inhibit the exportation of locally manufactured goods and compound the trade imbalance which now exists between imports and exports.

“It means I cannot export, because my goods are now at least four per cent more expensive than my regional competitors,” he complained.

“I will now have to fund four per cent of my expenditure for at least a year, perhaps a year-and-a-half, until the Government returns the four per cent to me,” he pointed out. “And I may not even be able to collect it back if I don’t make a profit.”

“Why place this cess on raw materials and capital goods for local production which is the only vehicle through which this country is going to grow?” Roberts asked.

Financial analyst, Dr Omri Evans, who conducts research for the manufacturing sector, agreed with Roberts’ sentiments and described the cess as “the most negative aspect of the new tax measures announced by the finance minister”.

“Taxing inputs into production is a retrograde step… it now adds a new disincentive to production,” Evans told the Sunday Observer.

Turning to other aspects of the budget, Lopez said she would have preferred to see a greater reliance on reduced government expenditure rather than increased taxation, which she said was coming out at some three per cent of Jamaica’s Gross Domestic Product GDP.

Lopez was also unimpressed by the setting up of a two-man task force to study aspects of the budget, noting that “there have been too many studies, we need to move to the stage of implementation now”.

Keith Duncan, director of the Jamaica Money Market Brokers, a leading primary securities dealer, was concerned that the “issue of growth wasn’t addressed” by Davies.

Duncan said he was also uncomfortable with the high debt to GDP ratio and said that “a clear message on a debt reduction strategy is missing from the budget presentation”. He noted that a “more powerful message could have been sent in terms of reducing government expenditures through greater efficiencies and cutting waste”.

On the plus side, Lopez said the targets as set out by the finance minister “are achievable”. However, the critical issue for her was: “Is it enough to satisfy the capital markets and rating agencies to allow the government to roll its debt?”

She praised moves such as the announced merger of the National Investment Bank of Jamaica with the Development Bank of Jamaica as setting the right trend. And she gave a commitment on behalf of the PSOJ to continue to “monitor the fiscal accounts and work with the Government… we want to see the minister succeed and even better his projections”.

For his part, Duncan gave the budget the thumbs up on the basis that the measures “appear to be quantifiable and therefore credible”.

He expressed satisfaction that interest rates were trending down, observing that this was “implicit in the amount of money dedicated to servicing the debt… the rates should average at 18 to 20 per cent “.

He said the deficit and primary debt surplus of 12 per cent was “very healthy when you compare it to countries like Brazil at four per cent”, noting that this was a key indicator for the capital markets and rating agencies in their evaluation of Jamaica’s risk.

However, for him, the best aspect of the budget presentation was that “the uncertainty is out of the air and this should create a more stable business environment”.

THE TAX PACKAGETax measures

1. 4% Cess on imports >

Effective May 1, this levy is to be treated as a credit against income tax. Davies says this will bring into the net, tax evaders who operate in the grey economy

Projected intake $3.394 billion

2. Increase stamp duty on in-bond merchants to 15%

Davies argues that revenues from in-bond merchants is minuscule. It pays no direct tax apart from 6% stamp duty now levied on goods imported for the trade. Effective May 1.

Projected intake $84 Million

3. Widening the GCT base

When GCT was raised from 12.5% to 15% in 1995/96 more items were exempt or zero-rated to ease the burden on the poor. Davies now argues that this narrowed the base and made the tax more complex to administer.

The base will now be widened with the inclusion of all exempt and zero-rated goods and services with the exception of raw materials, capital goods, and food items presently exempt and certain other goods, including school books andschool uniforms.

The GCT rate on telephone calls will go to 20 %.

Starts May 1

Projected intake $8.167b

4. Assets tax on specified bodies

Companies registered under the Companies Act or societies registered under the Industrial and Provident Society Act and other prescribed bodies are required to file annual declarations of value of assets and pay a tax prescribed by the Act. These rates are being increased.

Projected intake $83 million

5. Age limit on imported vehicles

Prior to March of this year, duty valuation on motor vehicles were based on Customs assessments. Now, under WTO rules, the actual transaction price is used.

Davies says this has had implications for the revenues in that the reference prices which were used by Customs were up to 20% higher than invoiced prices.

Davies says that as of June 1, vehicles older than three years will not be imported. The former limit was four years.

In the case of returning residents, they will be allowed to import cars up to five years old, rather than the previous 10 years. Newer vehicles will have a higher value and therefore attract higher duties.

Projected intake $180 million

6. Lowering of duties on specified motor vehicles

For a long time the duty of 280% has existed on vehicles of 3000 CCs and over as a means of penalising luxury and gas-guzzling vehicles. However, special concessions were made for trucks and pick-ups and similar vehicles, ostensibly because they would be used in the farming and productive sectors.

The problem that has arisen is that many in the industry have complained, that some of the new-type vehicles, such as SUVs and sport pick-ups, are no different from the luxury sedans. So Davies will as of May 1 reduce the taxes on vehicles with 3000 CCs to 180% per cent and raise those on full-size luxury to 180%.

Projected intake $500 million

7. Lower duty concessions to certain groups in the public service

Presently this group has a concession of 20% duty on vehicles with a maximum value of US$30,000 free on board. This is being reduced to a maximum of US$25,000 cost insurance freight.

Davies says he is tightening up a practice in which contracts are signed by some ministries for contractors to import vehicles duty-free without following all the rules relating to the types of vehicles.

Effective April 22.

Projected intake $250 million

8. Increase of special consumption tax on alcoholic beverages

Davies says these rates have not increased since 1995.

Projected intake $44 million

9. Removal of credit on bonus shares

Part of an effort to encourage companies to keep profit in the firms and to avoid high-cost debt, Davies explained, was to allow income tax credit up to 25% on bonus shares issued from accounting profits.

However, the Government has in recent years lowered the tax on dividends, to its final elimination this year, after long complaints of double taxation — on profits and on dividends.

Davies said that the Government cannot afford both the tax credit on bonus issues and the elimination of the tax on dividends.

New arrangements kicks in on June 1.

Projected intake $550 million

10. Environmental levy

Davies pointed out that 12% of municipal waste in Jamaica comprises plastic packaging material of which half is polyethylene (PET) containers.

The government will charge a levy of $2 per kilo on such containers imported, manufactured and or distributed in Jamaica. The money will go towards waste management to help with the cleaning up of such material.

The levy starts May 1.

Projected intake $192 million