Starting January, the rich will be taxed at a higher rate than companies, reasoned large accounting firm KPMG, which added that a $1 increase in salary above the $10 million threshold could see $750,000 in additional taxes.

“We note that individuals in receipt of incomes in excess of $10 million will be taxed at a higher rate than companies,” stated KPMG in its newsletter to client obtained by the Business Observer. “The addition of statutory deductions will effectively increase taxes on such individual income to more than 40 per cent. With dividends paid by local companies being taxed at a nil rate, this may encourage individuals in this high income bracket to incorporate companies, which continue to be taxed at 33 1/3 per cent, to shield personal income from the higher tax rate.”

The firm wants clarity on whether the newly tiered income tax rates will be charged on total income or incremental increases above the tiered rates. KPMG is a Jamaican partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss co-operative.

“For the avoidance of any doubt, we wish to clarify what we understand to be the manner in which this new measure should be administered,” it stated. “Otherwise, $1 of additional income could result in an additional $750,000 in income tax.”

It noted that government could also charge higher tax on incremental increases over thresholds. The Ministry of Finance yesterday did not respond to Business Observer queries up to press time.

“For individuals in receipt of incomes over $5 million and no more than $10 million, the additional rate of 2.5 (percentage points) should only be paid on the portion of their income which exceeds $5 million. Similarly, individuals in receipt of incomes in excess of $10 million should pay the rate of 27.5 per cent on the portion of their income which is between $5 million and $10 million. The further 10 per cent should only be imposed on the portion of their income which is in excess of $10 million,” it stated.

Prime Minister Bruce Golding announced his fourth tax package for the year on December 23rd. Golding said that individuals earning incomes above $5 million annually will be charged increased rates of income tax from January 1, 2010, to March 31, 2011. The new rates include: no tax on salaries under $441,168; 25 per cent on salaries up to $5 million and 35 per cent over $10 million.

Government is seeking to raise more than $20 billion to close the gap in the budget as a result of the economic downturn affecting small and large economies worldwide.

Budgetary support of US$1.2 billion is also being sought from the International Monetary Fund (IMF) and Opposition has suggested that the new tax measures were part of the IMF conditions.

Included in the new tax package is increased GCT from 8.25 to 10 per cent on goods and services supplied by the tourism sector, effective April 1, 2010.

“We note that the increase in the GCT rate of the tourism sector could be counterproductive as it may result in increased room rates if the increases are not absorbed by the sector. This may place Jamaican tourism enterprises at a disadvantage in a highly competitive sector. Any downturn in the tourism sector could have a significant impact on the Jamaican economy as the sector is currently one of the main earners of foreign exchange,” stated KPMG.