KINGSTON, Jamaica (JIS) – The House of Representatives on Tuesday passed the Income Tax (Amendment) Act, which seeks to continue the incentives provided under the Junior Stock Exchange.

The benefits include a 10-year period tax break, where no corporate tax is paid for the first five years and 50 per cent of the prevailing rate is paid in the next five years. Companies also have access to capital as a result of preferential treatment from banks.

In closing the debate, Minister of State in the Ministry of Finance and the Public Service Fayval Williams said data has conclusively shown that the tax incentives have encouraged growth of the junior market and created employment.

“The 29 companies listed on the junior market have raised over $5.73 billion. The market started with a capitalisation of $521 million and it is now $96.2 billion. Over 1,000 new permanent jobs have been created at these companies, and that does not count the indirect jobs that were created,” she noted.

In addition, she said, some $4 billion in dividends were distributed and the number of strongly capitalised companies with robust taxpaying capabilities has increased.

Opposition Spokesperson on Finance, Dr Peter Phillips, while welcoming the legislation, raised concern that companies were using the junior stock market as a means of avoiding taxes.

“What we are seeing is that… long-established and mature companies, some of them as old as 25 years old, have been made eligible to participate. These companies have, in some instances, spun off subsidiaries connected to these venerable parents in order to secure tax relief rather than because of any pressing need for new equity expansion,” he said.

“What we need to do with both the senior and junior exchanges is to design a mechanism that provides an incentive to the people who want to invest and become participants in the adventure of economic growth,” he argued.

In her response, Williams said that strong penalties have been attached to the tax incentive scheme.

“The companies must stay listed, as any taxes foregone would be clawed back; and even after the incentive period ends, the company has to stay listed for at least five years, so they cannot leave after the incentive period without penalties,” she pointed out.

Williams said the observation that the majority of companies have sought to raise minimum capital does not necessarily suggest tax avoidance.

“Consider that maybe it is not tax avoidance that causes companies to seek to raise minimum capital, but their assessment is that when they list on the stock market, chances are, the price for the equity at that point in time will be the lowest price that they will see. And so you seek to minimise the percentage that you put on the market,” she argued.

The Junior Stock Exchange was launched on April 1, 2009 to encourage and promote investment in Jamaica’s entrepreneurship, employment and economic development.

It allows investors to put capital into legitimate small and medium enterprises, whose shares trade on a special Jamaica Stock Exchange platform.