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OP-ED: Taxation | The oddities of GCT

Published:Wednesday | August 5, 2015 | 8:00 AM
Everald Dewar

An irate taxpayer once asked a revenue agent: "If I had earned the money from selling in New Kingston, would you still assess it?"

"Yes," replied the agent, "you would be offering a service."

The taxpayer was referring to deriving financial gain from the fruits of unlawful activities.

Similarly, in one of my recent lectures, a participant asked whether as a subscriber he was entitled to a refund, including the GCT, paid to his cable provider, which was found by the Broadcasting Commission to be in breach of its licence on the grounds of selling channel content that was obtained illegally - hence, improperly collecting and paying GCT to the Government.

My response was that the GCT was not refundable as he did consume the service. By taxing the receipts, it would appear the Government is a 'silent partner' in an unlawful activity; however, the law does not say it taxes only lawful business.

Having received a metaphorical bloody nose, the participant then made a further assault by asking if he pays someone who supplies his business with electricity stolen from the national grid, whether he could get a tax deduction for the cost. But more on that later.

Speaking about electricity, I am looking at my bill and grateful for the innovation of the Jamaica Public Service Company (JPS) in granting a discount of $250 as an early payment incentive - hoping this discount increases in the future.

However, I note an equal 'late fee' was charged the previous month when my bill was paid after the due date. What was puzzling, however, is that GCT was added to this charge. Unless I am operating a business then, my electricity usage as a residential customer where consumption is not more than the zero-rated threshold of 350 kilowatt-hours consumed in a month, I am not liable to pay GCT on my bill.

Effective May 1, 2015, GCT at the rate of 16.5 per cent was reimposed on electricity for residential customers whose usage is above the threshold. Customers whose usage falls below the 350kWh unit would not be required to pay GCT.

The principal activities of the JPS are the 'generating, transmitting, distributing and supplying of electricity in accordance with the terms of the All-Island Electric Licence, 2001'. Therefore, what the JPS supplies is a service called electricity. Is it then that this fee is for something other than electricity?

supply charge

It may be that the JPS is operating under advice that the late fee is similar to fees imposed by the banks - that is to say, it is deemed to be making another type of supply when charging the fee. However, there is no similarity with the banks. GCT is a tax on consumption. Something has to be consumed before the tax becomes applicable.

What is being consumed here is electricity, and to say the fee is not a part of the supply of electricity would be contrary to facts and common sense as there is a clear nexus or link between them. The use of the words 'late fees' on the bill is semantics - 'a rose by any other name'.

Factually and strictly on a point of law, there is a direct consequential birth, and this fee is a child - the offspring of the electricity consumed.

The obligation to pay the fee arises from the consumption of electricity and it is not possible to separate the two. It is similar to where food is provided by an airline to its passengers - the food becomes a part of and is integral to the 'flight'.

There is a principle that where a complete transaction includes more than one supply, and where some supplies are taxable and some exempt and the exempt amount does not form a primary part of the transaction, where practical, the elements can be separated and treated differently. However, there is only one single supply of electricity in this case.

The purpose of the incentive and late fee is to encourage early payment for the electricity consumed. There is a clear and direct link between them. Therefore, the late payment fee should not attract GCT.

Getting back to the lecture - not to be outdone - the participant eventually asked whether lotto scammers are required to pay tax on the gains from their illegal activities.

To quote Mark Twain: 'Let us draw the curtain of charity over the rest of the scene.'

n Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston. everald.dewar@bdo.com.jm