Jamaica Stock Exchange (JSE) Managing Director Marlene Street Forrest is encouraging companies with prospective capital raises to gear up for the changes to the Income Tax Act, which should become law in a matter of weeks.

An Income Tax Amendment Act was passed in the House of Representatives (Lower House) and Senate (Upper House) in January to codify some of the proposed tax changes announced by former Finance Minister Dr Nigel Clarke during the March 2024 budget debate. Some of these changes included the changes to the duty-free threshold for personal/household effects, the income tax threshold adjustment and changes to the maximum voting share capital for companies listed on the JSE Junior Market from $500 million to $750 million.

Although the Bill has been passed by both houses of parliament, it must receive the Governor General’s royal assent it to become law. While that assent or his signing is unknown, there is an expectation by certain market players for the changes to become law in the coming weeks. When the income tax amendment becomes law, the JSE will approach the Financial Services Commission (FSC) for its non-objection to update its Junior Market rule book to reflect the new $750-million threshold. The substantive language of the Bill regarding the Junior Market is currently unknown.

“So, what we are saying to people is, our companies, you can now begin to put your documents, et cetera, in order. In anticipation of the assent of the governor general, we are recommending that persons plan around the higher threshold of $750 million,” said Street Forrest in a call with the Jamaica Observer.

The Junior Market came into existence on April 1, 2009, after being piloted by former Senator Donald G Wehby, the JSE and other stakeholders. The Junior Market creates a space for companies to raise equity capital from investors to grow their business and also benefit from a 10-year tax remission. That tax remission results in Junior Market companies not being subject to any income tax for the first five years after listing and being subject to 50 per cent of their income tax rate for the remaining five years.

According to data composed by incumbent Finance Minister Fayval Williams over the last five years, companies listed on the Junior market paid $1 billion in statutory payments, $1.6 billion in general consumption tax and $1.6 billion in PAYE (Pay as you earn) income taxes. The number of new employees resulting from 2009-2024 was stated to be 40,511 persons. Also, it was stated that the total capital raised across all the companies and investors between 2009 and 2024 was $20.2 billion. A total of 55 companies have listed on the JSE Junior Market since 2009 with six graduating to the Main Market and two delisting from the JSE. There are currently 47 companies on the Junior Market now.

Some Junior Market companies have been patiently waiting for the last two years for the Junior Market threshold to be adjusted to list their subsidiaries or raise new equity capital to further accelerate their growth. This is because some of these firms would have been at their limits with respect to their own share capital cresting the $500-million mark. The reason that most companies chose to remain below the threshold is due to the implications it would have for their future tax remissions which would be halted if they surpassed that mark.

FosRich Company Limited executed a $139.32-million non-renounceable rights issue in July 2023 which saw their share capital hit the maximum $500 million. At the time, the company was just in its sixth year after listing when it would have just entered the second phase of its tax remission period. Thus, raising above that threshold would have put the company in conflict with Junior Market rules and put their remaining tax remission at risk.

Also, the announcement by former Finance Minister Dr Clarke of the intended increase of the maximum share capital resulted in potential aspirants parking their capital raises until it became law. Those firms added new directors and prepared the necessary governance structure, reorganised their businesses and prepared their prospectus in their bid to meet the requirements to list on the JSE Junior Market.

Government supports JSE on Micro Market

On Tuesday, Finance Minister Williams announced that the Government had accepted the JSE’s proposal to work on creating a Micro Market for smaller businesses. Currently, companies can list on the Junior Market which requires a minimum share capital of $50 million and maximum share capital of $500 million after listing. Companies that list on the Main Market can raise any amount of capital, list by introduction or list through an offer for sale where their existing shareholders sell shares to the public.

However, listing is not a simple endeavour as there are reporting requirements and other ongoing requirements which must be met to maintain compliance with JSE rules. As a result, some companies aren’t in the position to consider raising equity capital by way of the Junior Market or were able to meet the ongoing reporting and compliance requirements, but didn’t need to raise new capital to take them to the $50-million mark. This is where the Micro Market is set to be a differentiator, as companies would raise between $10 million and $50 million.

“I am pleased that the Government has signalled that they will work with us now on the Micro Market. It has been a long time in coming. We are using the same template as the junior market in terms of having stakeholder involvement on the steering committee, so that the product that we put out there is a product that is acceptable to Micro Market companies,” the JSE MD added, regarding the announcement of the Micro Market.

Apart from meeting the minimum capital requirements, companies on the Junior Market are also required to have a mentor to guide them unless that requirement is waived by the JSE. These processes can make it daunting for some companies to list.

“So even with the Micro Market, we are going to have to employ technology and a lot of training in order to ensure that where we see our best wins is governance, because when a company has good governance, then they can raise capital anywhere, in terms of governance and sustainability,” Street Forrest responded re: plans for the Micro Market which has already identified more than 250 micro and small businesses.

She also stated, “So, a lot of that will focus on the Micro Market, on that, the mentorship, etc. Some conduits to assist them in preparing their financial statements, because even with a small and medium-sized company, it becomes a challenge in terms of cost, which is why I say some of the things will be technologically driven. So, that is what we are building out, to ensure that they can comply.”