THE Bustamante Industrial Trade Union (BITU) is soliciting the support of the Jamaica Bankers’ Association (JBA) in urging Government to reduce concessionary loan tax rates to financial sector workers and increase the tax threshold on monies borrowed.

Employees in most local financial institutions are entitled to concessionary loan rates and are liable to pay tax on the difference in interest payment between a concessionary rate and a prescribed open market rate of 14 per cent arising from any loan exceeding $1.5 million. But the BITU, which primarily represents workers at financial institutions, is urging Government to increase the tax threshold on the amount borrowed to at least $4 million.

“In 1991 when (the tax on concessionary loans) came in it was $1.5 million,” said BITU president Kavan Gayle, noting that “Twenty years later, the threshold is still at $1.5 million, which seriously places a burden on low and middle-income earners, especially since no consideration was given to making adjustments in line with the movement in inflation over the past two decades.

“The BITU believes that a threshold of at least $4 million would not only ease the tax burden on those applying for a low income or middle-income mortgage, but also facilitate loans to those in this category who are otherwise disenfranchised,” said Gayle.

Gayle also called on Government to lessen “what is currently being deemed as the open market rate” in line with current open market rates of around 12 per cent. He told the Business Observer yesterday that he has written a letter to the JBA asking them to lend its support to the cause.

“We are asking the JBA to support us in the call,” he said.

Since the difference between the concessionary rates granted by a financial institution and the open market rate represents a cost saving to the borrower, it is regarded as income under the Income Tax Law, and as such, attracts a tax of 25 per cent on interest saved on loans that exceed a threshold of $1.5 million. The tax was introduced in 1991 as a revenue-earning measure to assist in financing the Government’s budget of that year.

The specified financial institutions under the law are the central bank, merchant banks, commercial banks, development banks, insurance companies, trust companies and building societies under the Building Societies Act.

The only loans — up to a maximum of the $1.5 million — that are exempted are those used for purchasing house for owner’s occupancy; purchasing a motor vehicle for private use; purchase of land; education; emergency needs (compassionate loans); training; and furnishing of residence for owner occupancy.