Going after the $$$! - Tax authorities targeting online vendors
With more Jamaicans getting involved in online shopping, the Ministry of Finance, through Tax Administration Jamaica (TAJ), is taking steps to capture the persons selling products and services online in the tax net.
The drift from the brick and mortar stores has accelerated in the past year with some persons operating solely online, and so far managing to escape Jamaica's tax authorities' radar.
But the TAJ has warned that online merchants are not exempt from taxes, as "the appropriate tax regime is already prescribed by our tax laws and is no different from what is levied on traditional block and mortar businesses.
"It is the policy of TAJ that all delinquent taxpayers must be required to account for the correct amount of taxes due and payable," said the state agency in an emailed response to questions from The Sunday Gleaner.
In an effort to ensure these online sellers pay up, TAJ, through its Intelligence, Investigation and Enforcement Unit, developed a work plan for the current fiscal year under the subheading Compliance Strategies.
This refers to e-commerce as one of the focus areas following extensive field observations and intelligence gathering.
The compliance strategy now being implemented is to be executed in four phases - identification, case development, assessment, and collection.
"TAJ is currently in the identification phase where a number of procedures are being executed, designed to identify and monitor the activities of players in the e-commerce sector.
"To date, more than 20 entities have been identified and are being monitored with a view to be transitioned to the case development phase.
"During 2016-17, under the pilot phase, seven cases were developed for assessment and collection. All seven entities were forced-registered for GCT and two are currently filing and paying. The other five entities are currently being investigated with a view to making best-judgement assessments."
TAJ, however, revealed that the challenge being faced is the identification of the persons conducting these businesses online.
But tax expert Denzil Whyte told our news team that the challenge might be more than just identifying the online business operators.
LOOPHOLES WITHIN THE LAW
According to Whyte, while the law covers e-commerce, it has loopholes and weaknesses that allow persons to legitimately organise themselves to minimise their tax exposure.
"Some of the weaknesses would arise if persons are trying to benefit from treaty shopping and trying to benefit from having their corporate structure set up in lower tax jurisdiction like St Lucia and Barbados through International Business Corporations (IBC), where the tax rate would be zero or near to zero," said Whyte.
"And if persons seek to do that and then set up operations here in Jamaica, but not visible operations, they basically set up a structure where they are selling through an IBC location. It would mean any trading income from those entities could actually be distributed in dividends to a Jamaican, and CARICOM double taxation treaty would stipulate that the rate of tax on that dividend would be zero," added Whyte.
He noted that it is a practice for persons in structuring their businesses to look for these opportunities to pass income through CARICOM member states that are signatories to the double taxation treaty.
"Properties in Jamaica are being owned through the IBCs and companies are formed through the IBCs in St Lucia and Barbados, all with the aim of reducing, at least in part, local tax implications of the activities," said Whyte, who is a director at KPMG.
He noted that indirect means can be used to help identify persons operating businesses online.
"If you try to use a direct approach, that will not likely yield the type of success that you would want. But if you use the indirect approach, where you look at the persons who are increasing assets and try to trace the sources of income, I think you are likely to have great success there," said Whyte.
"The other indirect approach they can use is to look at where persons are spending. If that information is collated they won't need to go the route of best-judgement assessment; they will have a basis to assess," said Whyte.