The Financial Services Commission (FSC) says it has detected nearly two doze investment schemes operational in Jamaica, suggesting a surge of business, and the tax authorities are again warning that returns paid to investors, even from the illegal operators, are considered taxable income.
"Whether it is legal or illegal, all income is subject to tax," Karab Damdar, technical specialist in the office of Director General, Tax Administration, told a FSC-sponsored forum this week.
Damdar later told The Financial Gleaner that the Income Tax Act makes no distinction about the source of income nor its legitimacy.
Her raising the issue at a public forum, she said, was to counter the perception by investors that they were exempt from filing returns and paying income tax because the schemes to which they belong are labelled by the FSC has unregistered and unlicensed and therefore in criminal breach of the Securities Act.
FSC Executive Director Brian Wynter says none of the high-return schemes have sought to be legalised, and while three of those entities - Olint/Overseas Locket, Lewfam and Cash Plus - have sought the court's intervention to declare them outside the remit of the Securities Act and beyond Wynter's oversight, the regulator said for now all are seen as acting outside the law.
The FSC director, while he has not outrightly labelled any of the schemes as scams, did say investors should be asking why returns are quoted on a per month basis - the going rates are 10 to 25 per cent - when the investment community normally quotes per annum.
"It might be because it is more believable than saying 120 to 300 per cent per year," said Wynter.
Other commonalities between the schemes, he said, are none of the principals has opted to go through a fit and proper test, none has sought registration, presented audited or unaudited accounts to their members nor issued a prospectus, and they refuse or neglect to disclose what they own.
"All have found a big financial secret," said Wynter. "The best kept secret is how the funds are made."
This week, the tax authorities said they had a fair idea of the investment income on which taxes are due but were not prepared to make the information public.
Damdar also the Financial Gleaner that "most of the schemes are not tax compliant".
The earliest investment clubs, as they define themselves, appear to date back three to five years.
Damdar said the Tax Commissioner is allowed by law to assess six years of back income, and in the absence of filed returns may make a "best judgement" assessment of a person's worth and taxes payable based on lifestyle and other factors.
Still, the tax specialist said, it is the tax department's policy to allow time for voluntary compliance, using notices and reminders to prod filings. The department has already issued a public notice to investment club members about their tax obligations and reiterated this week that returns are due annually by March 15.
As to whether income or returns generated overseas was subject to tax, Damdar said absolutely.
"This thing that it is offshore money and not taxable, this is not true," she told forum participants. "A person resident in Jamaica is liable to tax for his world income, whether received in Jamaica or not."
She told the Financial Gleaner that a Jamaican 'resident' is considered someone who lives in Jamaica for six months or more each year, and/or who has substantial holdings here.
The tax department tracks down income under cooperation treaties with other countries and by using "third party information", Damdar said, but refused to specify the latter.
The FSC for its part has been criticised for not being more aggressive in going after the schemes, but the agency told the Financial Gleaner that its lack of action was meant to protect persons who are invested in the schemes.
"We also recognise that public education is as, if not more, important than strong enforcement, as prosecution does not result in investors being
compensated for loss if a scheme proves to have involved fraudulent or deceptive practices," said the FSC in an emailed response.
"Along with this, we will continue our efforts to ensure that members of the public can identify the investment schemes that are operating outside the law."
FSC List of 'Extremely High-Yielding Unregistered Investment Schemes'
Caribbean Real Estate Investment Fund (CAREIF)
World Wise Partners Limited
Swiss Cash
Higgins Warner Music and Entertainment
MayDaisy E Partner Plan Club
F 1 Investments/F 1 Holdings
A 3 Union
Wealth Builder and Associates
Right Vision E Partners Private Members Club
Strategical Alliance Investment Company
SGL Holdings
Partner Financials
Kingdom Investments Unlimited International (KIUI)
Image Consultants & Services
Nipo Farms
USIMO
Cash Plus Group
Olint Corp Limited
Overseas Locket International Corp
LewFam Investments and Trading Limited
LewFam Investments Club
Note:
1. The latter four operations have been served with 'cease and desist' orders.
2. Olint, LewFam and Cash Plus have filed action against the FSC, for which court rulings are pending.
