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Stephenson asks for bold approach to SEZ incentives

Published:Wednesday | February 18, 2015 | 2:00 AM
Grantley Stephenson, CEO of Kingston Wharves Limited.
Grantley Stephenson, CEO of Kingston Wharves Limited.
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Grantley Stephen-son, CEO of Kingston Wharves Limited, wants the Government of Jamaica to carefully weigh its policy of reining in tax subsidies against the need to maintain comparative advantage, particularly as it relates to the incentives for Special Economic Zones (SEZ).

Kingston Wharves is currently developing a logistics centre to position for expanded business expected under the Panama Canal project as well as Jamaica's global logistics hub programme.

As a side project to the global hub, and as a replacement for free trade zones that are being phased out this year, the Ministry of Industry, Investment and Commerce will be rolling out at least 16 economic zones that aim to encourage foreign investment.

A Green Paper outlining plans for the sector was tabled in Parliament in January by the Ministry of Industry, but a letter to the Cabinet secretary from Financial Secretary Devon Rowe of the Ministry of Finance, which accompanied the parliamentary submission, hints at reservations in relation to incentives.

Rowe wrote on January 9 that the finance ministry had no objections to the tabling of the Green Paper, but only "on the proviso that the language on the fiscal incentives will be sufficiently generic in order to avoid any appearance of a firm commitment by the Government".

The finance ministry said the suite of fiscal incentives for SEZ investors/developers would not be disclosed during consultations on the policy, but would be known at the development of the White Paper, which is usually the precursor to drafting of legislation.

The ministry is treading

cautiously amid commitments to rein in tax subsidies under the International Monetary Fund-backed economic reform programme.

"While we all understand the tight fiscal space and limited discretion on incentives stemming from difficult but necessary IMF benchmarks, we must strike a balance between our need for tax revenue and our impetus to be globally competitive," said Stephenson, who, at Wednesday Business' request, was responding to the contents of the new SEZ Green Paper.

Kingston Wharves has free zone status, which it is expected to swap for SEZ status, once the policy is codified.

bolder measures

A bolder approach must be taken, said Stephenson, to offerings being made to investors, given Jamaica's hope to be competitive. He notes that nearby Panama, which is developing its own investment zones, had no tax at all.

"The financial secretary's caution that the language and context of the fiscal incentives should be general in nature, a mere two months before the SEZ policy is to be approved by Cabinet ... will serve only to further delay the promulgation of legislation which is already long overdue," said the port company boss.

"Let us not mistake that what is put forward is a significant improvement over our current regulatory ecosystem but the proposals are not so generous as to warrant fear that they will erode the Government's tax base."

The SEZ Green Paper proposes a number of fiscal and non-fiscal incentives to attract business over the medium to long term, including a low corporate tax rate for qualified companies.

It proposes a single uniform low/positive rate of 10 per cent to 12.5 per cent corporate income tax, or CIT, on profits, which is less than half the 25 per cent rate now applied to unregulated companies and 33.3 per cent for large regulated companies; exemption from dividend tax for shareholders resident abroad; and potential exemption from tax for SEZs targeting high-technology/innovative activities linked to the use of a licence or patent/intellectual property.

The Green Paper also suggests that the developer of a SEZ may qualify for a 'developer's tax credit' on capital expenditures directly incurred during construction or improvement works in the economic zone. The credit may be offset against other income-tax liabilities of the SEZ developer from any other source, but SEZ policymakers are proposing that the offset be limited to 50 per cent of that liability in any one year of assessment.

more liberal approach

Stephenson is suggesting that a more liberal approach to incentives for these zones would in the long term attract much needed tax revenues.

"We must begin to understand that a smaller percentage of a larger and growing pie is significantly more attractive than a large percentage of an industry arrested by an uncompetitive and complicated tax regime. Free zones in Panama, our close neighbours and most fierce rivals already have SEZs offering the benefit of zero per cent tax on income while we continue to struggle with 25 per cent and experience opposition to the SEZ policy Green Paper's proposal for its reduction to between 10 per cent and 12.5 per cent," he said.

He also offered commendations to the Ministry of Industry "for seeking to develop a modern and complete framework to competitively transition existing free zones into Special Economic Zones - an effort which will augment our development into a Global Logistics Hub and catalyse its growth agenda."

"The Green Paper addresses some critical areas - long the subject of discussions between business lobbyists and government bodies like the Port Authority of Jamaica and Jamaica Customs - concerning such matters as the simplification of customs processes and aligning our SEZ framework with international standards," he noted.

Kingston Wharves is currently advancing plans for the company's launch into full-scale logistics hub operations.

The group plans to introduce post-Panamax cranes to its equipment fleet during 2014, as well as undertake significant redevelopment of its warehouse operations using best practice models and technology. It will also see the extension of Kingston Wharves' port boundary and free-zone area, in effect expanding the availability of space for modular warehousing, and manufacturing for the export market.

The company claims pole position in Jamaica as a global automobile transhipper and as a hub for leading feeder lines, allowing for direct shipment to ports across the Americas. Kingston Wharves is also said to be the operator of the largest public cold storage facility in the Caricom trade bloc.

avia.collinder@gleanerjm.com