IMF targets property taxes - New system to be sent to Cabinet for approval by year end as part of new requirement
A new property tax system to get rid of the transfer tax and stamp duty now charged are to go before the Cabinet for approval by December 31 as one of two new structural benchmarks under Jamaica's four-year loan programme with the International Monetary Fund (IMF).
The IMF reasoned in its latest country report on Jamaica's economic reform programme that "there is scope to strengthen the property tax system and phase out the distortionary stamp duty and asset transfer tax".
According to the fund, the annual property tax yielded on average about 0.4 per cent of gross domestic product over the last three years, well below the average yield of 0.8 per cent in other emerging markets.
"The authorities," the IMF said "are examining how to strengthen property taxes, which are shown to be more progressive and efficient. In this regard, new and recalibrated property tax rates and bands will be submitted to Cabinet by end December. The higher yields from property taxes could provide room to replace the more distortionary stamp duty and transfer tax."
Inherited from Great Britain
Almost a year ago when it came out against the old taxes inherited from Great Britain, the IMF said "distortive" taxes such as transfer taxes and stamp duty should be phased out in favour of a capital gains tax.
The IMF argued that "taxes on gross asset values such as the transfer tax and the ad valorem stamp duty are highly distortive, discourage profitable transactions, and encourage informal ownership, all of which are drags on growth".
Currently, no capital gains tax is levied in Jamaica. However, capital gains earned from selling property that are considered business income may be subject to income tax.
According to Tax Administration Jamaica (TAJ), documents are stamped as proof of the payment of stamp duty and/or transfer tax and to make them legal and binding.
Transfer tax, meanwhile, is assessed and paid by persons transferring real properties such as land or shares and/or transferring property on death. In the case of transfer of land, the tax is paid by the seller on the market or appraised value.
Dialogue with stakeholders
Speaking in the House of Representatives yesterday, Dr Peter Phillips, opposition spokesman on finance, urged the Government to have dialogue with stakeholders before signing off on any proposal. The Government has struggled over the years to collect property taxes and has resorted to creative means, including setting up an incentive-based system.
Earlier this year, the Auditor General's Department reported that over the financial years 2011-12 to 2015-16, property tax totalling $3.26 billion had to be written off and $13.5 billion remained outstanding.
The value of property tax collected increased by almost three times to $6.5 billion in the last financial year from $2.5 billion in 2011-12.
The other new structural benchmark involves the approval of the new organisational structure of the Accountant General's Department to be concluded by September and the development of a training programme by January 31, 2017.