Wed | May 24, 2017

Expanded environmental levy added to panorama of taxes

Published:Wednesday | June 17, 2015 | 6:00 AM
Everald Dewar

Years ago, while living in England, it was my understanding that the BBC used to have a pronunciation department whose task was to ensure that all newscasters and journalists dealt correctly with foreign names.

A particular example was an African tribal leader whose name caused particular difficulty. Eventually, the employees managed to pronounce his name with confidence, only to report the next day that he had been assassinated.

Many will recognise the parallels with our new tax laws. Just as we are being told that the implementation date for the 3% withholding tax on services has been postponed, here comes the environmental protection levy. We have a new tax placed in abeyance, but then along comes another, leaving us confused as to where we are now in this tax panorama.

While the order for the levy is not particularly long or difficult to understand, the difficulty is in the implementation itself.

Some taxpayers could find themselves in the unacceptable position of being unable to comply with the requirements. Also, given the time line for implementing, there are potential problems in terms of the potential administrative complexity which is verging on the unworkable.

Before now, an environmental levy was charged on all imported goods with few exceptions. the rate was 0.5 per cent on the cost insurance and freight value.

calculating the levy

Effective June 1, the levy now extends to goods from Caricom and those manufactured locally. The rate on local manufactured goods is 0.5 per cent on 75 per cent of the sales price before applying special consumption tax and general consumption tax (GCT).

From all indications, GCT is applicable on the levy once this is recovered in the price.

Note that while the GCT act will govern the administration of the levy, it is not a value-added tax, hence the basis for removing 25 per cent from the selling price representing the mark-up on the goods. Therefore, if the goods are given away or donated, there should be no levy.

The environmental levy is not applicable on intermediary or goods for distribution, but will affect export once the goods are manufactured here - as the law has made no exception.

Credit is available where the levy is paid at the wharf on productive input (raw material), but not capital equipment or spare parts. This credit is for the levy paid on raw material imports and should not extend to the levy paid on local inputs provided to local suppliers of manufactured goods.

Levy paid on capital goods and spares may be deducted for income tax purposes. As it is applicable only on the sale of locally manufactured goods where a manufacturer purchases and sells goods from external sources, care must be taken to base the calculation only on the local goods.

compounding effect

Manufacturers are concerned that the levy could have a compounding effect on their goods moving through many processes before reaching retail shelves.

Under the fiscal incentive rules, the process of manufacturing does not include producing goods from a process that consists mainly of dividing, cutting, purifying, mixing, branding, preserving and packaging.

The cooking or baking of food to be consumed shortly thereafter, for example, a restaurant, is not manufacturing. Similarly, improving or altering any article or material without making a change in their character, such as repairing and refurbishing, may not be manufacturing.

Manufacturing should result in the transformation of raw material into goods that are new or distinct as to their legal or commercial characteristics when compared to the input used. So lime, sugar and water mixed and bottled to give a new product is manufacturing, so, too, would be water that is filtered and bottled.

The levy return must be submitted per quarter on the last working day of the following month. Therefore, the first payment is due on July 31.

This is a tax to address environmental degradation and was contemplated from 2003 where an environmental levy of $2 per kilogram was proposed on containers imported, manufactured or distributed in Jamaica. Containers include plastic packaging material such as plastic bottles used to package soft drinks, detergents, trash bags, and fast food packaging (styrofoam).

The proposal suffered from the similar contentious legal challenge surrounding the legitimacy of the customs user fee since its implementation. This was seen as potentially breaching the Revised Treaty of Chaguaramas on the grounds that the tax discriminates against imported goods.

The current environment protection levy is now taxing locally manufactured goods as well as imports, hence creating a 'levy' playing field.