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Commentary: Reservations on the guest room tax

Published:Friday | March 20, 2015 | 12:00 AM
Everald Dewar

Tax Administration Jamaica's (TAJ) administrative machinery for implementation of the new income tax return forms has clearly misfired. Something appears to have gone wrong.

It was high drama on Nationwide radio a few days ago when a caller, identified as Donna, complained that the current Revenue Administration Information System (RAiS) is also not working.

Donna railed against the system as highly unfair to persons representing taxpayers and described TAJ as trying to 'protect taxpayers from their tax accountant' - the very person who is there to help them.

It got more interesting the next day when the radio host invited Meris Haughton, director of communications at TAJ, along with her colleague, to explain what was happening. Miss Haughton, skilled in the art handling uncomfortable questions, explained, among other things, that RAiS' e-services allow for the electronic filing and payment of tax returns such as general consumption tax, special consumption tax and the guest accommodation room tax (GART).

GART is charged per night on all occupied rooms at hotels, resort cottages, guest houses and other similar accommodations.

Operators of these accommodations for transient guests, including tourists - whether sleepovers or short-term stays - are liable to collect and pay over GART. For this reason, accountants make merry of it by dubbing it the 'back-road tax'.

The tax per room, depending on the size of the hotel or resort, ranges between US$1 and US$4 per night.

Incidentally, since GART took effect in 2012, the caller has been pushing for certain elements of the tax to be revised; for example, in circumstances where a customer makes a reservation at a resort and pays a deposit on a room. The agreement is that a no-show penalty will be imposed if the customer never turns up. The penalty would amount to the deposit, excluding GART and GCT.

occupation vs

physical presence

TAJ assessed the resort for both GART plus GCT on the guaranteed reservation. The owners of the resort objected, arguing that GART is charged on 'occupation', which suggests some physical presence, and that where the customer fails to turn up there is no occupation of the room and hence no consumption of service. Therefore, neither GART nor GCT was due.

TAJ held the view that there was a 'supply of a right of occupation', similar to the reservation of a seat on a flight or at a concert, which are clearly occupations even when reserved seats are not occupied. TAJ's argument is that the resort charged for the use of a room, whether it was occupied or not. Making a room available appears, in the TAJ's view, to constitute an occupation and also a supply of service.

The position of the resort is well-argued - that occupation of a room or supply of service is deemed to take place when services are performed, and it is a tenable view in this case that no services are performed until a customer arrives at the resort. TAJ may well say that a key factor must not be ignored - that a contract existed binding the customer to pay a deposit for a room, whether it was used or not, and so it is a deemed supply of occupation for a consideration.

So, what is the true position where a room is booked and held for a guest, but the guest does not turn up? Should there be a charge for the tax?

Based on TAJ's reasoning, once there is a non-refundable charge it appears that the tax will become applicable.

If the guest were to check in but not stay, would the tax be applicable? What of a guest who actually checked in but got sick and spent the night at a hospital? These positions are not certain.

It is not clear whether physical occupation is a necessary requirement. However, it could be that checking in without actually staying at the resort would include occupation of the room. So once the room is intended for sleeping purposes and is 'deemed occupied' the tax may become applicable.

This kind of reasoning may appear to some as an 'unfair reaping of results' - something that the impressive 'Artful Dodger', a character in the Charles Dickens novel Oliver Twist, would have conspired; or better yet, the resourceful Tom Sawyer, the fictional character in the Mark Twain novel, who connivingly obtained a new Bible reserved for children who memorised 2,000 verses. When the Sunday school superintendent was forced against his better judgement to ask him the names of Jesus' first two disciples, the poor lad replied: "David and Goliath".

• Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston.