THE Opposition People’s National Party (PNP) has warned that small and medium-sized businesses, already being battered in the worsening economic storm, will be further pressured by the increase in the General Consumption Tax (GCT) announced by Government on Thursday.

At a press conference held at the PNP headquarters on Hope Road on Friday, Opposition spokesman on National Security and renowned entrepreneur, Peter Bunting, said businesses will now have to brace for an impact on their bottom line.

“What they are facing now is a period of uncertainty. A period where they would likely have a contraction of demand. If I use my own family as an example, my brother is a producer of sheep and lamb, and his sales have fallen dramatically for the last year already, just because the buying power of his customers have been significantly reduced,” Bunting said.

“To add now, not just the 17 and a half per cent GCT, that will be put on the product, but the 17 and a half percent that would be put on his input cost, and things like animal feed, which will require more cash flow upfront; it could very well put someone like him over the edge,” he added.

Bunting, who will be starting a new financial firm soon, said that businesses are “already on the edge, getting battered”.

“Now, we are looking to a period of further recession which would be the likely impact of this tax package. Then you know it is going to be very challenging for small and medium-sized business operators,” he said.

It will also be challenging for big businesses such as Carerras, which does the marketing and distribution of cigaretes in Jamaica. The SCT on cigarettes will increase once more this year from $8500 per 1000 sticks to $10,500 per 1000 sticks.

Dr Omar Davies, opposition spokesman on finance, noted, “Obviously the tax package is going to compress demand. People only have a finite amount of disposable income and there are certain necessities, which are going to be impacted. Some of them are not discretionary. If you have electricity, you either have electricity or you don’t. Not many people are splurging.”

The Third Schedule of The GCT Act outlines an increase in GCT from 16.5 per cent to 17.5 per cent. The increased GCT will apply to a wide range of non-discretionary items including “the supply of electricity to residential premises”, sanitary towels and tampons, eggs, salt, sugar, and cooking oil.

“What you have, essentially, is a household with a certain level of disposable income; a greater percentage of that disposable income is going to be used on non-negotiables. So the prospect, then of small businesses growing would have been diminished because you are going to have a lower level of disposable income,” Davies said.

Bunting suggested that small businesses brace for the impact of the reduction or shift in demand and take a moderate approach to risk.

“I think the best strategy is to plan and be as conservative as possible. It’s not a time for them to be taking a lot of risks. And to the extent that they can adjust their product offerings to increase value, to perhaps go down the stream in terms of the economic segment that the price can accommodate, that is probably a reasonable strategy,” he said.

Item 39 of the tax package also stipulated a tax on “activities for which an admission fee is charged by any cultural or other organisation”, suggesting that entertainment and other activities will be affected by the measure. Davies said this is not a new attempt to capture the largely non-compliant entertainment sector in the tax net. However, he questioned whether the new measure would have much success.

Entertainment in Jamaica is a multi-billion dollar industry, with the closest estimate of its value put at an annual $21 billion, according to a Stanford University study.

“Let us start with the assumption that the tax system should be equitable. One of the problems that Jamaica faces is that there are significant sectors which are outside of the tax net. So it’s long been an issue we have struggled with, and one approach was to build it into the ticket price. But that presupposes that either the entertainer or the promoter is formally acknowledged. It’s not a new problem, in that regard, and I can understand the issue with equity. So it’s not an issue. I think its just to formalise it across the board. But the reality is that in certain instances, at your local dance, how you are going to practically collect it?” said Davies.