By Errol Gregory, ContributorBY STAYING the execution of the full impact of the property tax increase, government has done a good public relations job in easing and masking the likely increase. After all, the proviso that taxpayers could pay the average in the bands where their taxes fall until their appeals have been heard, does offer a ray of hope.
But even with this attempt by Minister Bertram to minimise the impact of the new taxes, the issue of its likely negative impact on the economy and its financial markets is not going away.
In the first place there is a major concern of the possible negative impact on the budget if the required amount at the requisite compliance rate was not met. Government had initially projected to raise $1.7B with a 66 per cent compliance rate. Against the background to the many other imponderables facing the economy namely:
the recent shocks to agriculture,
very moderate growth in the US
weaker than anticipated
earnings from tourism,
recent property tax increases merely reinforce the tentativeness of the economic environment.
Then there is also a concern that the generally hefty nature of the increases a point conceded by the government itself could have an inflationary impact on the economy especially for fixed income holders of property such as pensioners.
Economist and Financial Consultant, Dr. Lloyd Prince, also shares these fears about the possible harmful impact of the tax, as while he concedes that the tax may be justified, he believes that in its present form it could be seen as counter-productive and onerous. Expanding on this point he said, "the increased taxation was excessive in terms of the magnitude of the increase and especially when the government was successful in containing inflation to single digit. To achieve its tax objectives in the medium term, the taxation could have been on a phased basis, just as how government was successful in the reduction of the tax on shareholder's dividends on a phased basis."
Dr. Prince also argued that the increased taxation on land could trigger increased rentals of properties as well as increased prices for agricultural products as a means of covering the increased tax on land. This concern that the new taxes would hurt farmers was also shared by Billy Heaven, Financial Consultant and former Executive Director of the National Development Founda-tion of Jamaica. Heaven argued that if farmers have to pay the increased tax they will have to pass it on to consumers as "nobody will be prepared the absorb increased costs".
In this regard both Prince and Heaven welcomed the announcement of tax relief for farmers by the Prime Minister. Prince contended however that other institutional arrangements had to be put in place for farmers to increase production. He detailed these as policies to address the problem of praedial larceny and effective marketing programmes, supported by the Jamaica Agricultural Society and the Ministry of Agriculture, aimed at providing "institutional support to the marketing of domestic crops".
On the issue of the likely impact of the increased taxes on the real estate sector, the jury is still out on this matter. Billy Heaven is convinced that as the higher taxes work their way through the system, the now substantial taxes will have to be factored into the prices of rentals and leases. In Heaven's view the higher taxes could lead to many investors re-orienting their portfolio holdings away from real estate. One real estate broker said that the increased cost would be more pronounced especially in strata units apartments where, increased insurance costs resulting from the higher property valuations, would cause maintenance costs to soar.
Financial analyst, John Jackson agrees that in the short term the new taxes will generate uncertainty in the real estate but believes that in the medium to long term the impact would not be that great as soon as the elections are behind us and things are back to normal.
Financial analyst, Dennis Richards was even more philosophical in his interpretation of the potential impact of the new taxes. He argued that the tax only represented one element of cost and that other factors such as the price of land and the cost of rental influenced the real estate market. He added that the demand for rental properties in the commercial capital of New Kingston was fairly buoyant and that it was possible for this to persist and yet firms demanded less space as they were improving their output with less space.
What is less contentious, however, is the expected impact of the new taxes on fees related to land transactions. Attorney-at-Law Jeremy Palmer of the JLP argues that fees that are charged on the values of properties would be adversely affected. He cited the case of fees for subdivisions and fees for adding a person to a title as examples of these. Citing an example he said that a property valued at $500,000 on the tax roll could end up paying transfer fees of $70,000 (inclusive of lawyer fees). Palmer believes that when the new taxes work themselves through the system they will throw it off balance in terms of the magnitude of the increases.
In summary the new taxes have brought a new level of uncertainty to the economy that was already grappling with other imponderables. This has developed because the new tax was approached in a manner that breached the rules of good taxation namely certainty (property holders are sure how the tax will impact on them) and simplicity (easy to calculate). The economic impact of this shortcoming could do untold harm to an already fragile economic recovery.
that if farmers have to pay the increased tax they will have to pass it on to consumers as "nobody will be prepared the absorb increased costs".
In this regard both Prince and Heaven welcomed the announcement of tax relief for farmers by the Prime Minister. Prince contended however that other institutional arrangements had to be put in place for farmers to increase production. He detailed these as policies to address the problem of praedial larceny and effective marketing programmes, supported by the Jamaica Agricultural Society and the Ministry of Agriculture, aimed at providing "institutional support to the marketing of domestic crops".
On the issue of the likely impact of the increased taxes on the real estate sector, the jury is still out on this matter. Billy Heaven is convinced that as the higher taxes work their way through the system, the now substantial taxes will have to be factored into the prices of rentals and leases. In Heaven's view the higher taxes could lead to many investors re-orienting their portfolio holdings away from real estate. One real estate broker said that the increased cost would be more pronounced especially in strata units apartments where, increased insurance costs resulting from the higher property valuations, would cause maintenance costs to soar.
Financial analyst, John Jack-son agrees that in the short term the new taxes will generate uncertainty in the real estate but believes that in the medium to long term the impact would not be that great as soon as the elections are behind us and things are back to normal.
What is less contentious, however, is the expected impact of the new taxes on fees related to land transactions. Attorney-at-Law Jeremy Palmer of the JLP argues that fees that are charged on the values of properties would be adversely affected. He cited the case of fees for subdivisions and fees for adding a person to a title as examples of these. Citing an example he said that a property valued at $500,000 on the tax roll could end up paying transfer fees of $70,000 (inclusive of lawyer fees). Palmer believes that when the new taxes work themselves through the system they will throw it off balance in terms of the magnitude of the increases.
In summary the new taxes have brought a new level of uncertainty to the economy that was already grappling with other imponderables. This has developed because the new tax was approached in a manner that breached the rules of good taxation namely certainty (property holders are sure how the tax will impact on them) and simplicity (easy to calculate). The economic impact of this shortcoming could do untold harm to an already fragile economic recovery.
