Reforming Jamaica's tax system

THE PARLIAMENTARY committee considering reform of Jamaica's tax system has been told it needs to complete its work by the end of this month.

"We need to conclude all our work to enable the White Paper to be presented at the time of the Budget," Dr Peter Phillips, the minister of finance, has said.

Below is a summary of the tax reform proposal that Parliament is being asked to consider.

1. A three-year tax-reform programme (TRP)

2. A reduction in income tax rates and/or increase in the PIT threshold

3. A reduction in the GCT rate(s) and a widening of the GCT base

4. A simplification of the tax laws

5. A review of and the overhaul of the existing tax incentives and waivers

6. Compulsory filing of income tax returns

7. A reduction in the Common External Tariff

8. An advance tax payable on the importation of goods

General Consumption Tax (GCT)

1. Reduce GCT standard rate to 15 per cent./12.5 per cent

2. Widen the GCT base (reducing the number of items which are exempted or zero-rated)

3. Abolish the exiting 5 per cent advanced GCT, payable on the importation of goods. Replace same with an advance tax of 5 per cent advance tax payable on the CIF for goods imported. This amount should be used to pay any tax which requires the filing of a tax return. (This tax should not be used to pay any of the tax/fees payable on imports. However, it should be refundable if not utilised after one year of so paid.)

Income Tax

(General)

1. Compulsory filing: It should be mandatory that every resident of Jamaica files an Income Tax Return

Effective FY 2011, every person who is regarded as a professional will be required to file a PIT return, whether that person is self-employed or not.

All business, irrespective of losses - will be required to file an income tax return. Currently the Act does not require a loss-making entity to file a return, as no tax is payable.

If accepted, by FY 2014 all residents will be required to file an income tax return

2. Capital Allowance:

Increase the annual allowance for motor car

Implement accelerated depreciation - form of incentive

Immediate write off once the balance reaches a certain amount

Permit allowances for intellectual property and other intangible assets

Remove the annual allowance on building and permit a one-time initial allowance

Company Income Tax (CIT)

1. Reduce the statutory rate from 33¹/³ to 30 per cent then to 25 per cent

Personal Income Tax

(PIT & PAYE)

1. Increase the PIT threshold to $507,000 and $624,000 effective Jan. 1, 2012 and Jan.1, 2014;

2. Amalgamate education tax with PIT

Common External Tariff

(CET - custom duty)

1. Reduce CET rates to 20 per cent (or 25 per cent - dependent on the custom administration fee) for rates above

Custom Administration Fee (CAF)

1. Apply a custom administrative fee ( at the port) - 3 per cent to 5 per cent

2. This is to replace:

Custom user fee

Environmental levy

Standard compliance fee

Custom processing fee

Additional Stamp Duty - to remain

Contractor'Levy

1. To allow contractors to carry forward the unused amount, not exceeding five years

Asset Tax

2. Eliminate asset tax

This is a tax which is imposed on the value of assets owned by companies. Again this is not an equitable tax as it is not paid by all taxpayers and is seen as a nuisance tax

Minimum Business Tax

1. Implement a minimum business tax

To ensure that every business pays a direct tax

Could be used to replace trade taxes, asset tax

Businesses making losses and on those tax holidays would have to pay

Simplification of Major Tax Laws & Incentive Regime

Create an omnibus Tax Code/ Tax Incentive Act.

This process will seek to eliminate some of the existing incentives and harmonise others.

The law should state the types of waivers, conditions and, if possible, a cap on how much can be waived. This should include the process for waiving taxes

Item currently not subject to GCT

1. Basic and unprocessed food

2. Agricultural items:

a. Machetes, cutlass files, grubbing hoes, farm forks

b. Fishing apparatus

c. Planting material including cereals and seeds in their natural state

d. Fertilizers, herbicides, fungicides

e. Insecticides

f. Animal feeds

3. School bags & uniforms

4. Some energy-saving devices

5. List 4 drugs - Prescription

6. Printed matter: Books, magazines, etc

7. Major construction services

8. Medical services

9. Rental of residential properties

10. Education services

11. Health insurance & life assurance

12. Public water

13. Sewerage disposal

14. Activities regulated by the Betting Gaming & Lotteries Act

15. Financial instruments

16. Port services