Sat | Dec 14, 2019

Give SMEs a tax break

Published:Saturday | November 30, 2019 | 12:18 AM

THE EDITOR, Madam:

I write in response to the observations in your Editorial yesterday, relating to proposals to reduce the rate of general consumption tax (GCT).

I am proposing that as a first step, the Government stop collecting GCT at source from compliant entities.

Currently, GCT of up to 22 per cent is collected at the ports of entry from compliant organisations. While the ignorant will suggest that it’s reclaimed from subsequent sales and therefore a non-issue, there is a real cost associated with this interest-free “cash advance” to the Government.

Since importers generally try to have adequate levels of inventory to meet demands without running out, one often has a “credit” with the Tax Administration Jamaica (TAJ) that can’t be offset against future import GCT obligations. So for next week’s shipment, you must again advance the Government’s 22 per cent.

Having to find the additional 16-1/2 per cent to 22 per cent on inputs benefits the Government from a cash flow perspective as well as financial institutions, but come at great cost to the economy, especially since we’re a highly import dependent economy.

FREE UP WORKING CAPITAL

The SME sector can’t grow faster than the speed of money and the current policy is a major speed bump, that if cleared, would free up working capital, reduce finance costs and possibly prices to the consuming public.

While it sounds self serving, it will be providing support (a jump start) to SME’s, who have been dubbed the “engine of growth”, which has been stalled for some time.

Who knows, the fortunes of the SMEs might mean more profit and subsequent taxes, increased employment and maybe some of that elusive growth both administrations so desperately seek.

GAVIN ORR