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JHTA, JSE oppose PSOJ on tax waivers

Published:Friday | December 30, 2011 | 12:00 AM
Robin Levy, deputy general manager, JSE.
PSOJ president Joseph M. Matalon. - File Photos
Evelyn Smith, president of the Jamaica Hotel and Tourism Association.

Steven Jackson, Business Reporter

The Jamaica Hotel and Tourism Association (JHTA) and the Jamaica Stock Exchange (JSE) separately object to the Private Sector Organisation of Jamaica's (PSOJ) draft proposal to substantially remove tax waivers, saying it would hurt business.

Essentially, the JSE and the JHTA want protected the 10-year tax break separately offered to hoteliers and companies listed on the junior stock market.

The PSOJ argues that these fears are premature, as its proposal remains in draft format.

"In fact, the working group has not yet signed off on the submission as a whole and it would, therefore, be premature to comment on any specific recommendations at this juncture," read a message from PSOJ President Joseph M. Matalon, sent via Evett Evans-Coombs, executive assistant at PSOJ.

The fears arose from the recent circulation of the PSOJ's draft tax-reform proposal to stakeholders.

Robin Levy, JSE deputy general manager, said removing the tax waiver could halt new listings and lead to a "less than optimistic" market performance in 2012.

"In principle, we are in support of the tax reform, but we think it is a huge mistake for the PSOJ to lobby to remove tax incentives for the junior market," said Levy, who reasoned that the initial tax-break period would ultimately result in increased taxes to Government.

"In a few years, they will pay more taxes than they did before."

The junior market aims to raise a maximum of $500 million for medium-size entities. The incentives include a full income-tax break for the first five years of listing and a reduced tax rate until the 10th year of listing equivalent to one-quarter the regular tax rate.

The junior market, launched in April 2009, received its first listing in October of that year with Access Financial Limited. Currently, 12 stocks are listed on that market, with another IPO planned for January - Caribbean2World, a music publisher start-up.

Market activity on the junior exchange quickly surpassed the main market, with several stocks doubling in price within a year of listing.

Evelyn Smith, president of the JHTA, says her group objects to any ad-hoc proposal to scrap the Hotel Incentives Act. The law allows 10-year relief from GCT, income tax and import duty to hotels in different categories.

"We are vigorously opposed to it," she told the Financial Gleaner this week. "What sector has the ability to generate foreign exchange, investment and employment? It's tourism! Let's not try to kill it, which is what a tax would do unless you take it from a knowledge-based position," the JHTA president said.

Hoteliers have access to the tax holiday for investments in new or existing properties. The incentive applies to existing hotels adding a minimum of 10 rooms or 30 per cent of the existing number of rooms, whichever is greater, or to existing hotels that have done or intend to do substantial structural alteration as well as new hotels.

Approved convention hotels with 350 or more bedrooms are entitled to income-tax and import-duty relief ranging from 11 to 15 years.

The PSOJ is coordinating discussions with various lobby groups and trade unions whose positions will be formulated into one document for presentation to government's Parliamentary Tax Reform Committee.

The Green Paper on tax reform ,which was tabled in May 2011, aims to simplify the tax structure while expanding the tax base.

The consultations will inform the drafting of a White Policy Paper on taxes, which will form the basis of new tax laws. Last month, discussions on the Green Paper for tax reform continued with sector interests arguing for the protection of certain industries. The PSOJ, however, has still not made its submission to the committee despite expectations that its position would have been formalised in October.

Last month, the Ministry of Finance said the PSOJ position paper was the only outstanding business remaining for the committee to wrap up its deliberations. The committee had expected to complete its work by the end of the year. Tax reform is one of three areas in which Jamaica needs to make progress - the other two are asset divestments and public-sector reform - in order to get its suspended International Monetary Fund programme back on track.

The Paying Taxes 2012 report published in November by global accounting firm Pricewaterhouse-Coopers (PwC), in collaboration with the World Bank and International Finance Corporation, identified Jamaica as the 11th worst in terms of the ease of paying taxes in the world.

The ranking was based primarily on the number of payments required to be made by companies and individuals, the number of hours spent to pay as well as total tax rates.

The report's chapter on Jamaica, written by chartered accountant Eric Crawford, a tax partner at PwC Jamaica, was subtitled: 'Inadequate tax collections despite relatively high tax rates - resolving the dilemma'.

Crawford described the level of taxation as relatively high based on the rate of personal income tax at 25 per cent and general consumption tax at 17.5 per cent. He recommended a number of initiatives geared towards improving tax compliance, including widening the tax net and the reconsideration of special tax waivers for projects which generate wealth.

"Furthermore, there is an inordinately high incidence of 'discretionary waivers', meaning that the Government waives tax that is legally due. It will not be easy to address this latter issue, given that individual taxpayers who benefit from various exemptions will fight to retain their positions of privilege," Crawford said.