GCT and the importation of foreign service
At its introduction in 1991, the general consumption tax (GCT) was described in the Parliament as a 'simple tax', but the last 23 years has shown that it is anything but simple and continually proves itself to be a complicated tax.
These complications continue even today in the 21st century, including the imposition of GCT on imported services.
Taxable goods imported into Jamaica attract GCT at the port of entry. It also has always been the case that services imported attract GCT, but while Customs imposes GCT on goods this was not possible with services and attempts were made to address the situation.
However, it was not until July 2014 that someone seemed to have convinced the Government that the safety of the realm would have been imperilled if this was not rectified.
The legislation has now set out with absolute clarity what we lesser mortals have been saying for some time. As the law now stands any Jamaican business, with sales of $3 million or more, importing international services should account for GCT as if it supplied the service to itself. We need to be sure of who is supplying what, where, when and to whom.
GCT relating to the supply of services has always defied commonsense. The law is wholly unhelpful - it says "anything that is not a supply of goods but is done for a consideration is a supply of services".
Making a distinction between goods and service is essential now more than ever, and intelligence alone does not provide the answers.
The man in the street might hold the view that goods are anything tangible while services are anything that is not, but some countries treat certain computer software as goods, while for others it's a service.
Therefore, if the businessman believes he is dealing with imported goods Customs would have determined GCT at the point of importation, but if it later transpires that he was in fact dealing with services, the GCT approach would be different. He may import a machine on hire which is, in essence, a service rather than goods. So it could be that a supply for possession of something is a supply of service, while a supply of ownership is a supply of goods.
The distinction between the two is best illustrated using something everyone is familiar with - a telephone card. The supply of a telephone card with unused credit is a supply of service because the card grants a right to use telephone services. But if all the credit was used up, the card now constitutes goods.
WHAT OF THE SUPPLIER?
Assuming that the businessman has determined correctly that what he received is a supply of service, the next step is to ascertain where the service was performed and by whom? It appears that services of foreigners entering Jamaica for artistry, such as sporting or entertainment, are caught in the GCT net, even if the services are physically performed here, as the law provides that the imported service is to be utilised here and supplied to a Jamaican by a person who is not a resident of Jamaica, or the service is provided overseas by a person who is doing business here.
What of a landlord living overseas that rents his property located here to a Jamaica businessman, or what if the property is located overseas?
It is par for the course that input tax can be claimed by a businessman on the importation of taxable supplies. However, the exception to this rule is that no input tax can be claimed where the service comes from an overseas entity that is connected to the importer of the service - if the authority is satisfied that the transaction is genuine. It is not clear how this satisfaction will manifest itself but the writer suggests a six-month period for any dissent.
But, as most of these connected offshore companies are tax-haven bound or treaty protected, it is unthinkable, as far as the legislator is concerned, to believe that a Jamaican-owned or connected offshore entity is not managed and controlled by any other means than by the Jamaican party pulling all its strings.
This has dire consequence for many arrangements such as that specifically aimed at captive insurance. What initially could be seen as an odd drop of tax rain, now in fact turned into a tax hurricane when combining irrecoverable GCT of 16.5 per cent on premiums with the newly introduced withholding tax of 15 per cent.
The late Ethlyn Norton-Coke once said that GCT is a 'gravalicious tax' - and as mothers in Rome would say to their misbehaving children: "Hannibal is at the gates."
GCT, like Hannibal, Rome's nemesis, proves once again to be a taxpayer's worst nightmare.
n Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston.