Fincos want tax equality with non-regulated companies
The chief spokesman for securities dealers, Steven Gooden, is making a pitch for the Jamaican Government, GOJ, to be more lenient on taxes for his sector.
Gooden, who is both president of the Jamaica Securities Dealers Association, JSDA, and CEO of NCB Capital Markets Limited, a top brokerage owned by Jamaica’s largest bank, says now that the Government is seeing the fruits of its fiscal reforms, it was time to consider equalising the taxes paid by financial sector firms, or fincos, with other companies.
Fincos and other regulated companies, with the exception of life insurers, pay a corporate tax rate of 33.33 per cent, whereas other companies are taxed at 25 per cent – a variance that has been in play for six years. Fincos are also subject to an asset tax of 0.25 per cent charged against balance sheet assets, which is not deductible in the computation of income taxes.
“The GOJ’s fiscal situation has improved and now the country has moved from a fiscal deficit of 3.9 per cent, of GDP to a surplus of 0.1 per cent, and debt-to-GDP of 132.5 per cent to close to 100 per cent of GDP,” said Gooden on the opening night of the annual JSE Capital Markets Conference in New Kingston.
“Now that the country is on the right track, we believe it is now time to revisit this regime. Now is the time to remove the current asset tax and bring the corporate tax rate of financial institutions in line with non-financial companies,” he said to an audience of Jamaican and international guests that included Prime Minister Andrew Holness but not his finance minister, who is responsible for tax policy.
The finance ministry closed the 2018 fiscal year with a surplus of $8.7 billion, and within the current period it was running a fiscal surplus of just under $1.3 billion on its operations, as shown on its monthly report for November 2018.
As part of his pitch, Gooden said it was established internationally that there was a connection between the health of the capital markets and economic growth – two policy elements chased by the Jamaican Government – and as a kicker, he asserted that the local markets were being negatively affected by tax inequality and other factors, but cited no specific data or analysis to back his case.
Gooden said that while he agreed with the original reasons for implementing the taxes six years ago, it was now time for change.
The variation was implemented when the GOJ embarked on programmes of fiscal consolidation, which meant it sought to live more within its means by squeezing spending – the end goal being to lower the deficit and rely less on debt to fund its obligations.
Still, it’s not that the Government raised the tax rate for fincos. But it did cut corporate taxes from 33.33 per cent to 25 per cent for other businesses, leaving regulated companies out of the loop.
“One could see GOJ’s reason for targeting the financial sector, given its transparent governance framework and high compliance rate for the sector,” said the JSDA president.
“As an industry, we are proud to have played our part, as painful as it may have been. However, now that the country is on the right track, we believe it is now time to revisit this regime. Now is the time to remove the current asset tax and bring the corporate tax rate of financial institutions in line with non-financial companies,” he said.
Gooden described the asset tax as “essentially a tax on capital” – one that “limits a securities dealer’s ability to execute on its market-making mandate, which is a critical function in the market’s ecosystem” and is part of a “slew of capital charges already implemented under the IMF programme,” which all serve to put Jamaica at a comparative disadvantage.
Gooden contended that there is no other country in the region with Jamaica’s level of tax differentiation, noting that Barbados, which has more recently embarked on an IMF programme, has adjusted its income tax rate in line with that of international business companies, which is closer to zero per cent.
“The circumstances are different,” he acknowledged. “However, the point I want to make is, capital will go where it is most welcome, and we need to ensure that the environment in which our market makers operate is conducive to the execution of their mandate,” the JSDA head said.