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GCT UP - Rate climbs to 16.5% - Income tax ceiling rises
published: Friday | April 15, 2005

Andrew Green, Staff Reporter

Finance and Planning Minister, Dr. Omar Davies, makes his way to the chamber at Gordon House to open the 2005/2006 Budget debate yesterday. - Norman Grindley/Deputy Chief Photographer

CONSUMERS, GAMBLERS and smokers will have to dig deeper into their pockets this year to help the Government keep its promise of balancing the budget.

Minister of Finance and Planning, Dr. Omar Davies, yesterday presented a tax plan to Parliament, intended to produce an extra $9.4 billion in revenue to plug the hole in this year's $347.2 billion spending plan.

The budget would also offer some relief to workers, however, by raising substantially the income level at which tax becomes payable. This is to counterbalance the hike in general consumption tax (GCT) and special consumption tax.

The standard GCT rate will rise from 15 per cent to 16.5 per cent, with building materials now to be taxable at this rate. Basic construction materials such as steel and cement currently attract GCT at a rate of 12.5 per cent.

This GCT increase "will have minimal impact on prices of basic foods as these are currently exempt and will remain exempt," Dr. Davies said.

All items 'zero-rated' for GCT purposes will be reclassified as exempt items, excepting for exports, and the activities of government, international agencies and diplomats.

No tax is charged on the sale of zero-rated goods, and any tax paid by the supplier of the goods in carrying out the taxable activity can be recovered as a tax refund. Information from the Ministry of Finance indicated that this tax refund is not available for exempted goods and in neither case is the consumer charged any tax.

These combined GCT measures are expected to yield $9.3 billion.

Proposals derived from a review of the Jamaican tax system by a Joseph M. Matalon-led committee had been one of the bases on which this year's budget was developed, Dr. Davies said. "The Government proposes to implement the reforms on a phased basis over a four-year period."

The Matalon committee had suggested raising the individual income tax threshold to $275,184. Dr. Davies said the threshold would be lifted to $169,104 from July 1, rising to $193,440 on January 1, 2006. The current threshold is $120,432.

Pensioners under 65 years of age will be eligible for tax-free income of $214,104 from July 1, and those over 65 will be eligible for $259,104. As of January 1 next year, pensioners under 65 will be eligible for tax-free income of $238,440 and those over 65 for $283,440.

The measures are expected to cost the Government $1.5 billion.

Transfer Tax and Stamp Duties at death will be simplified so that no tax is payable on the first $100,000 of an estate and 7.5 per cent on the balance over $100,000. This becomes effective on June 1 and should yield an extra $300 million.

Property Tax will be simplified so that $600 will be payable on the first $300,000 of property value and a rate of 0.5 per cent applied to any amount in excess of that. This will be implemented effective April 1, and is expected to yield an additional $280 million.

Tourism is also being called on to apply a GCT rate at half the new 16.5 per cent standard. This will be implemented on May 1, and is expected to yield $607 million.

A revision of the tax structure of the gaming industry with the application of a new gross profit tax, effective June 1, is expected to yield $300 million.

And a 49.3 per cent increase in the Special Consumption Tax on cigarettes, effective today, is expected to yield an extra $320 million. The Carreras Group immediately responded by announcing a hike in cigarette prices last night.

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