Finance Minister Dr Nigel Clarke has extended an olive branch to the Jamaica Public Service Company Limited (JPS) about potentially lowering their corporate income tax rate in a time when other amendments to the Income Tax Act were announced during his budget presentation on Tuesday.

JPS currently pays 33 1/3 per cent as its income tax rate due to it being a regulated company with oversight from the Office of the Utilities Regulation (OUR). Companies that are not overseen by a regulator — the Bank of Jamaica (BOJ), Financial Services Commission (FSC) of the OUR — pay an income tax rate of 25 per cent. As a result of JPS paying its current rate, it had a US$14.85-million (J$2.27-billion) company tax expense in 2022 and paid US$21.46 million during that year.

“We want to open discussions, at some point in the future, of looking at reducing the corporate income tax rate on JPS, once we can get the assurance that that in turn will lead to a reduction in the tariff rate on the consumer. You show us that, and we’ll take a good, hard, serious look at the corporate tax rate for JPS,” said Dr Clarke in his presentation.

JPS had 609,061 residential customers in 2022 with another 71,767 customers being large and small businesses. Residential customers made up 37.56 per cent of JPS’ US$1.16 billion revenue in 2022.

JPS’ consolidated tax expense was US$24.32 million (J$3.79 billion) and paid US$16.41 million in 2023 as per its unaudited fourth-quarter financials. This translates to an effective tax rate of 26.64 per cent. JPS’s audited financials should be out at the end of March.

The discussion around taxes came as the finance minister sought to update various aspects of the Income Tax Act which have become distortionary to recently regulated entities and other power players. In the case of Independent Power Producers (IPP), they were given a positive signal to continue increasing their renewable energy investments in Jamaica as the country seeks to reach 50 per cent renewable energy generation by 2030. Eight point four per cent of Jamaica’s energy was generated by renewable energy resources in 2021 with the Generation Procurement Entity (GPE) putting out a recent request for proposal of adding an additional 100 megawatt (MW) in renewable energy recently.

“Madam Speaker, to facilitate further investments in renewable energy, the income tax act will be amended to exclude IPP’s producing energy from renewable resources from the definition of regulated company for the purpose of section 30 of the income tax act. These amendments reduce the income tax rate for IPP’s from 33 1/3 per cent to 25 per cent and it will be limited to IPP’s who produce 75 per cent or more of renewable energy from wind, solar and who are regulated by the Offices of Utilities Regulation. They will not benefit from the employment tax credit,” Dr Clarke added, noting that this adjustment will cost $31 million in tax revenue.

The move, which takes effect in the 2023 fiscal year of assessment, comes several months after Wigton Windfarm Limited, an IPP, noted in its audited financials about the expected income tax rate change which was to take effect in its 2024 financial year. Wigton prepared its March 2023 audited financials using the 33 1/3 per cent income tax rate based on communication it received from Tax Administration Jamaica.

However, Wigton’s financials noted, “On 14 July 2023, the Company received a formal correspondence from the Tax Administration Jamaica stating that the Honourable Minister of Finance and Public Service has indicated his intention that effective for taxable years ending in 2023, to amend the income tax rate applicable for independent power producers regulated by the Office of Utilities Regulation which generate electrical energy wholly or mainly from renewable sources, to a standard corporate tax rate of 25 per cent from the higher tax regime 33 1/3 per cent utilised by certain regulated entities, in keeping with the Government of Jamaica’s policy to facilitate growth in the renewable energy sector.”

As a result of Wigton preparing its 2023 numbers with the 33 1/3 per cent rate, its net profit dipped to $325.53 million because of a $327.95-million tax expense. However, had Wigton been assessed under the rate of 25 per cent it had been paying in prior years, it would have had a net profit of $718.85 million due to receiving a $65.37 million tax credit.

This move comes as a win for Wigton amidst the rising interest in the firm whose shareholder limit of 10 per cent, a cap on how much any investor can own in the company, expires on May 1. Last Thursday, an investor purchased 524,079,771 shares or 4.76 per cent of the company at $0.95 for a cost of $497.88 million. Wigton’s virtual annual general meeting will be held on March 22 at 11:00 am. Wigton closed Tuesday at $1.10 which left the company up 39.24 per cent for 2024 with a market capitalization of $12.10 billion.

“The objective of the reduction in the corporate income tax rate is to promote growth through the renewable energy sector, to reduce greenhouse gases and emissions and to ensure energy independence as an economic matter. It is intended to give investors more confidence in the sector, to provide more capital and as the Government goes out and seeks 100 MW of new investment in renewables, this is a …, come in at even lower rates because the tax is a part of the cost that they bid,” Dr Clarke said.