Sat | Jun 6, 2020

Editorial | A different payroll support for small businesses

Published:Monday | May 18, 2020 | 1:30 AM

Despite his exhortation to firms to go ahead with their pre-COVID-19 investment plans, Prime Minister Andrew Holness knows that there will be no rush to move projects from the drawing board or to put new cash behind old ventures.

Indeed, even after the Government unveils its protocols for reopening of the economy, businesses will be cautious with their capital. And the smaller ones, many of which now face existential threats, will be more skittish. The times are too uncertain.

That is why the administration must pivot to a new round of stimulus, geared primarily at small businesses, to help in the short-term protection of jobs, as well as ensure that a critical mass of employment-creating enterprises remain as the country adjusts to coexistence with the novel coronavirus. That was part of the backdrop against which this newspaper recently raised the possibility of a payment holiday for employers on the three per cent payroll tax they contribute to the National Housing Trust (NHT), aware that it was not the only policy option worthy of consideration.

For the next phase of their employment-support scheme, Prime Minister Holness and his finance minister, Nigel Clarke, might, for instance, consider a loan scheme for small and medium-sized firms, similar in structure to America’s Payroll Protection Programme (PPP) for small businesses, which is a part of their US$2.2 trillion stimulus package. In that initiative, US small businesses can borrow up to US$10 million to help see them through the COVID-19-induced recession and may be eligible for forgiveness of the debt if at least 75 per cent of the loan is used over an eight-week period on qualifying expenses: payroll costs, utility bills, rent, and interest on mortgages.

In the United States, small businesses are firms with fewer than 500 employees, a net worth of not more than US$15 million, and after-tax (federal) income of not more than US$5 million for two consecutive fiscal years. In Jamaica, small/medium-sized businesses defines firms of up to 50 employees and turnover of up J$425 million.

Size apart, in the two economies, small businesses share important characteristics: they employ big chunks of the labour force and contribute significantly to GDP. In the US, nearly 30 million of these enterprises account for 48 per cent of private-sector jobs, more than 40 per cent of GDP, about a third of exports, and more than four of every 10 net new jobs.

Such precise data on the sector’s contribution to Jamaica’s economy is not available. However, a 2017 policy analysis by the industry and commerce ministry reported that according to Tax Administration Jamaica’s data, “approximately 97.6 per cent of all classified tax payers for FY 2015-16 fell within the 2013 policy definitions of MSMEs (micro, small, and medium-sized enterprises), with 83 per cent of these enterprises falling in the micro sector”.

“The ratio of MSMEs to the entire classified business population will likely increase to approximately 99 per cent, with the revised (current) definition of MSMEs in the current policy,” the document said.


In other words, most Jamaicans in formal employment work for MSMEs. Many of these enterprises are among the worst stressed by the fallout from the COVID-19 pandemic, including the economy’s projected decline of 5.1 per cent this year.

The situation would be catastrophic if a large portion of these businesses collapsed or were so badly disfigured that they merely limped along in the new scenario. Economic reconstruction would be far more difficult.

It is recognised that under its J$10 billion programmes to shore up jobs, the Government has offered J$100,000 grants to small businesses with sales of up J$50 million. This is separate from the J$18,000 per month per employee – for three months – being given as wage support to tourism businesses that keep on staff who earn less than income tax threshold of J$1.5 million annually.

Whether these transfers are the most economically efficient arrangements is one thing. But there are also issues about sufficiency of the scheme for small businesses that may have been viable under normal conditions but are teetering in the current environment. We appreciate that the Government’s fiscal accounts, too, are taking a hit from the downturn. Yet a new round of well-defined and accountable payroll support for appropriately registered small businesses that meet specific criteria may, in the long run, be a cheap cost to the economy if it prevents a deeper meltdown.