The Government, despite operating in a tight fiscal space, will be giving up approximately $153 million in revenues, according to a a ministry paper tabled in the House of Representatives by Finance Minister Nigel Clarke on Tuesday.
According to the ministry paper, the new measures are predicated on essential tenets of the tax reform system, including providing amendments to existing taxes and improving tax efficiency and effectiveness.
The measures would affect the sale of second-hand vehicles by registered car dealers; implementation of income tax credit on residential solar photovoltaic systems; and elimination of General Consumption Tax (GCT) on the importation of live horses, small ruminants and pigs.
The measures include $100 million from income tax credit on the installation of residential solar photovoltaic systems; $53 million from the elimination of GCT on the importation of live horses, small ruminants and pigs; and a zero return from GCT on the second-hand sale of motor vehicles by registered car dealers.
According to the ministry paper, the new measures support Jamaica's thrust towards reducing its carbon footprint and the utilisation of renewable sources of power generation, along with the further development of economic opportunities for citizens. The ministry paper said that the measures, therefore, provide the requisite corollary reforms, including the provision of credits and the elimination of taxes on some goods.
Ministry Paper 30 noted that while Jamaica continues to depend heavily on the importation of energy commodities, evidenced by the fact that just under US$2 million worth of energy commodities were imported into Jamaica for 2021/2202, "This unhealthy dependence on energy commodity imports increases the vulnerability of the economy and increases risks associated with the price shocks."
It said that Jamaica needs to focus on diversifying local energy needs in order to insure against world market price volatility, and provide a level of stability within the local economy. In this regard, Jamaica has introduced a number of fiscal measures to incentivise the investments in the renewable energy.
It said that the House should recognise the National Energy Policy, 2009/2030, which aims to increase the use of renewable energy in Jamaica's energy mix to 20 per cent by 2030. It also stated that the House may recall that the Medium Term Framework 2021/24 had set the target for renewables in electricity generation at 30 per cent by 2030.
As at 2021, the percentage share of renewables in energy stood at 13 per cent.
In keeping with these targets, it said that the House may note that the third schedule of the GCT Act includes a list of energy-saving devices that are exempt from GCT.
In terms of the implementation of the standard rate of GCT on the sale of motor vehicles by registered car dealers, it acknowledged that the current standard rate of GCT is not applied to the sale of second-hand vehicles. But, instead, a specific sum is payable, based on the age and the CC rating of those vehicles.
Part of the challenges stems from the fact that the law calls for 15 per cent to be collected on the full price sale for any vehicle sold by a dealer, while the individual is able to pay a flat rate of GCT of either $12,000 or $18,000. As a result of the disparity, the ministry paper said that registered car dealers would refrain from the trade-in-space since they are unable to profit from the business of trade-ins.
Additionally, second-hand sales by individuals are not currently captured in the calculation for GDP, thus the benefit of formalisation would lead to a more accurate reflection of the true economic activity of the motor vehicle trade in the country. A proposed margin scheme mechanism would permit GCT-registered taxpayers permit to account for GCT on the sale of second-hand motor vehicles, lifted to the difference between the purchasing price and the selling price.
In terms of the possibility of the limitation of GCT on the importation of live horses, small ruminants and pigs, the ministry paper noted that the horse racing industry is facing significant risks from the dwindling numbers of high-quality breeding stock horses.
It said that the barren state of broodmare stock has been steadily increasing since 2010, and in 2010 approximately 17 per cent of the broodmare stock was considered barren, with the figure increasing to 29 per cent in 2021. Further, approximately 40 per cent of the broodmare stock registered with the Jamaica Racing Commission was either barren or not bred.
And, in an effort to provide support for the local agricultural industry, with specific reference to small ruminants and the pig industry, it was proposed to remove the GCT payable on their importation. The measure is aimed at improving food security and providing a source of income and employment, especially for individuals in rural areas.
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