Tax refunds not a problem for employers, says expert
Senior Manager for tax at KPMG Jamaica, Denzil Whyte, is downplaying concerns that tax refunds to which employees are entitled under the Government's revised personal income tax threshold will be problematic for employers, in that it would affect their cash flow and some firms are also said to be uncertain as to which of their workers are entitled to those refunds.
Noting that there are protocols that can be used to address the issues, Whyte said that one such way is the setting off of tax that is payable to the Government against tax that is refundable, since the total amount that is paid over to the Government is a combination of several individual calculations.
In his Budget presentation, seeking to fulfill a February 2016 general election promise, Minister of Finance and the Public Service Audley Shaw announced an increase in the personal income tax threshold to be implemented in two phases.
In the first phase, the tax threshold was moved from $592,000 to just over
$1 million, effective July 1, this year, and according to Shaw, phase two, when it is expected to be increased to $1.5 million, is scheduled to be fully implemented in fiscal year 2017-18, starting April of next year.
Whyte, referring to the tax set off, told Sunday Business that "the way that it is operationalised is that if one employee is deserving of getting a refund and the employer has another employee for which there is additional tax payable, then what they are authorised to do by the legislation is to reduce their payable and to use that to fund the refund."
The KPMG tax expert, in outlining the methods of calculating the personal income tax, noted that the new tax regime became effective July 1, which is mid-term of the tax year. Whyte said that on a cumulative basis, not everyone would be entitled to a refund since at the end of July only those who have paid more in tax than is due to be paid will get a refund.
He said that those who are entitled to a refund earned salary in a band that is equal to the old tax threshold at the lower level, and the new tax threshold at the upper level.
"The persons who could possibly get a refund are persons who are earning taxable income of between $49,400 and $83,356 monthly. If you are earning less than $49,400 taxable income you wouldn't be paying tax so you wouldn't be entitled to a refund," he said, referring to the monthly salary earned under the old income tax threshold of $592,000. "If you are earning more than $83,356 you also would not get a refund," Whyte said, that sum referring to the monthly salary earned under the new tax threshold of just over $1 million.
The calculation of taxable income is done on a cumulative basis, which means that the tax is applied to income that is earned in each succeeding month. Whyte said the effect of this measure is that as tax becomes due on income earned, it is offset by the cumulative amount of income tax relief to which the taxpayer is entitled.
He cited as an example a person having taxable income of $80,114 monthly. Such a person, Whyte explained, would be entitled to a refund of $2,300 per month for the rest of the year since the amount of tax they had paid between January and June 2106 would be more than the tax that they are now liable to pay. Effectively, that person should not be paying any income tax for the rest of 2016 since their taxable income is less than the $1,000,272 personal income tax threshold. Any income in excess of the threshold is taxed at 25 per cent.
NO IMPACT ON CASH FLOW
Whyte said the offset method can allow the employer to legally undertake the refund without touching their own cash flow. For those employees who are entitled to a refund, and in the unlikely event that the employer is not in a position to offset that refund against tax due, then for the employee, it is a question of doing the appropriate paperwork, which is better done at the end of the year, he said.
"What he (the employer) would do is to give the employee a Form P24 and the employee can file a return to the (tax) authorities because the employer would have already paid over that money to the tax authorities and the tax authorities are not going to pay that money back to the employer because that money was paid on account of the employee," Whyte said.
Shaw had also announced that persons earning more than $6 million per year will be taxed at a rate of 30 per cent.
Whyte, referring to the Provisional Collection of Tax (Income Tax) (No. 2) Order 2016, said it actually mentioned $6 million for the discrete period July to December 2016.
Tax Administration Jamaica did not respond to Sunday Business queries, up to press time, about employees who are entitled to refunds, the method of calculation, and the estimated number of taxpayers in Jamaica who will be affected by the 30 per cent tax rate.