Yaneek Page | Businesswise | New taxes: What small businesses must do
In theory, revenue measures are simply the monies allocated to the maintenance and growth of a country that eligible citizens and organisations are obliged to pay as the price to exist in society.
In reality, unless taxpayers are producing and earning more each year, they are likely to view new or increased taxes as a debilitating albatross, unsympathetically diminishing their incomes, standard of living, and overall quality of life.
The very first thing small businesses need to do is listen to the people and learn how they feel about the recently announced 2017-18 revenue measures. By 'the people', I mean customers, prospective customers, partners, suppliers, stakeholders, and the wider society.
Their perception of how the taxes will affect them is as important, if not more important than, the estimated impact calculated by Government, economists, analysts, and others. Why? Because people are likely to make immediate changes to how they spend based on their perceptions of the impact.
Many will recalibrate their budgets based on feelings and guesstimates rather than precise accounting calculations. Most important, listening can help small businesses understand and empathise with customers and adjust strategies and operations to better meet their changing needs and realities.
GETTING ACCURATE INFORMATION
Small businesses must also acquire knowledge of the new revenue measures and their implications. Some helpful information sources are the websites of the Ministry of Finance and the Public Service (MOF) and the JIS. I also recommend following the MOF on social media, where they post updates almost daily.
The MOF also has a YouTube channel, with several videos simplifying and explaining budget concepts and terms and providing useful information on public procurement and public-private partnerships, among others.
Up to the time of writing this article, the MOF's YouTube channel had fewer than 20 subscribers, despite the fact that some of the content could have great strategic value to many businesses and aspiring entrepreneurs.
In terms of assessing the implications of the new revenue measures, small businesses have several options, including engaging registered accountants, reviewing tax bulletins issued by leading accounting firms and business associations, attending workshops and sensitisation sessions put on by the tax authorities, and others.
ASSESSING THE TAX MEASURES
The likely impact of new taxes on one's small business must be viewed within the broader economic context and not within industry or sector silos. New taxes and reduced government expenditure mean taxpayers must pay the Government more for the same or, in some cases, fewer services and benefits.
Jamaica's economy has remained stagnant for decades, experiencing on average less than 1 per cent GDP growth over the last three decades. Its citizens are neither earning nor producing more as labour productivity has declined by an average of 1.3 per cent per year from 1973 to 2007, with no improvement in sight.
Entrepreneurs considering starting a business should expect that most consumers will be clamouring to earn more while desperately cutting back on spending to tread above the poverty line.
The special consumption tax on fuels is expected to have by far the most consequential and wide-reaching impact. The increases will particularly affect motorists, the transportation sector, and those who pay for electricity consumption.
Motorists will also now pay 20 per cent more on motor vehicle licensing fees. Though the Government has projected that the impact on the cost of goods will be minimal, businesses will need to review their budgets to allow for these increased costs to see how they can eke out greater efficiencies and determine the impact on customers, who must bear increased fuel and transportation costs.
A key consideration is what, if anything, consumers will cut back on in order to afford these new taxes.
The reduction of the threshold for the application of GCT for residential consumers is another significant measure that is likely to take a substantial bite out of the disposal income of an estimated 40 per cent of their customers, leaving them with reduced income to spend on goods and services.
Added to this is the introduction of GCT on group health insurance, a tax that insurance companies have already insisted will be passed on directly and wholly to consumers and not absorbed in any way by them.
This is further exacerbated by the new property tax regime to be adopted on April 1, which will see tax liabilities calculated on the 2013 valuation roll. Although property tax rates will be reduced, Government expects to net an increase of $3.9 billion from this measure, which means that some property owners will need to dig very deep to pay the billions budgeted.
There can be no doubt that consumers will be forced to cut several luxuries and non-essentials from their budgets and may even be forced to cut back on essentials in order to pay these taxes.
The special consumption tax on pure alcohol and tobacco products will affect the producers and consumers of those products directly as well as will have implications for businesses that distribute and retail alcoholic beverages and cigarettes.
Restaurants, hotels, bars, clubs, and other entertainment-type businesses are likely to have to review their projections and plans in light of the new taxes.
While the above-mentioned implications may not be positive, the nature of entrepreneurship is to plan for challenges, to be flexible and fast in responding to same, and to find opportunity even in crisis. Jamaican entrepreneurs and businesses have no choice but to stay faithful to those philosophies.