Gov’t settles on 7.5% incentivised tax rate for SEZ operators
The Government of Jamaica has signed off on an arrangement for an incentivised 7.5 per cent income tax chargeable to developers or occupants of the Special Economic Zone (SEZ).
The special tax rate is five per cent lower than the standard 12.5 per cent tax rate chargeable on the income of developers or occupants, on condition that they fulfill criteria set by the Government.
The SEZ tax rate will be replacing the current zero income tax rate under the current regime.
Following the tabling on the SEZ green paper last year and consultations thereafter on how the tax rate would affect investors, the Government settled on the provision of the incentivised tax rate.
“There is a credit for the number of people that you employ and if you pay your PAYE and statutory deductions on time then you get up to 30 per cent off your tax bill,” chair of the Trade Facilitation Task Force, Patricia Francis told the Jamaica Observer at the Trade Facilitation Task Force luncheon for the official visit of the director general of the World Trade Organization, Ambassador Roberto Azevedo on Monday.
“There is an additional 10 per cent that you can get off and that has to do with how much money you invest in training and research and development. So in other words, the incentives are performance based, you have to do what you say you’re going to do first before you can get that,” she explained.
SEZs are aimed at replacing free zones in Jamaica and are being promoted and facilitated as a strategy to attract and retain targeted investments, and sustain economic activities across various sectors of the Jamaican economy.
The Zones include a petrochemical, dry and wet bulk trade centre slated for St Thomas as well as in St Catherine and Clarendon.
Clarendon and Kingston have also been identified as potential locations for business process outsourcing, maintenance and repair of ships, boats and other watercrafts, while Vernamfield, Clarendon will be developed for air cargo and trans-shipment maintenance and assembly.
Caymanas in St Catherine has been earmarked for light manufacturing and assembly; Sangster International and Norman Manley International for air cargo trade and trans-shipment of passengers; the Kingston Container Terminal and Kingston wharves for merchandise trade, semi-finished products and trans-shipment; and the Portland Bight for heavy industries and commodities.
The Government reckons that the Zones will attract new economic activities and foreign direct investments by allowing domestic suppliers to sell to companies located in the SEZs and potentially become a part of the global supply chains. The development of the SEZs is expected to eliminate the 15 per cent currently placed on domestic sales, while developing much-needed employment for Jamaicans.
In February 2014, Cabinet approved the development of the SEZs policy framework as a critical element of the global logistics hub initiative which had been approved from September 2012.
Just last week, the SEZ Act was passed in Parliament.
“The big issue on the incentives was the period to make the adjustment from the current regime where there is zero income tax to when we will be implementing the new taxation,” Francis told the Business Observer.
“We had originally said we were going to give two years and the compromise was to extend that to four years with the possibility of another six months. It’s a decent period within which people could make an adjustment to their contract because people have up to two-year contracts with their vendors and needed further adjustments.
“People then began to understand that with the employment incentive and other things related to training etc, they could even reduce the 12.5 per cent down to 7.5 per cent. So I think with the education of the people of what we were offering and that adjustment, we are now in a position where people are comfortable with what we have going forward,” she added.
Francis noted that Jamaica’s SEZs should see increased attention from international investors as the Government and surrounding bodies continue working to increase trade facilitation and the modernization of processes.
“Having the law now passed in Parliament we are in a position to begin the work of implementation. Between now and the end of March we will see the authority being put in place and the new law being promulgated and put into effect,” she said.