The Jamaica Bankers' Association (JBA) has described as excessive the Government's decision to retain the corporate income tax rate for financial institutions at 33.3 per cent while also introducing an asset tax and a withholding tax on dividends.
Under the proposed revenue measures for the 2012-2013 fiscal year, the financial sector, unlike some other industries, will continue to pay corporate income tax at the rate of 33.3 per cent.
In addition, it is proposed to introduce an asset tax rate of 0.2 per cent while also imposing withholding tax on dividends.
"The JBA is of the view that all these measures combined are excessive," the association stated in a release yesterday.
Considering the corporate income-tax rate, the withholding tax on dividends of five per cent, and the asset tax, which the JBA says equates to approximately five per cent of profits for some firms, "the financial sector is being asked to pay a significant tax rate," stated the release.
According to the association, "this disparity threatens to jeopardise the retention of capital within, the flow of new capital into, and the overall competitiveness of the financial sector if it is prolonged".
Under the modified corporate income-tax structure, unregulated companies will see a decline in the rate to 25 per cent, but those regulated by the Financial Services Commission, the Office of Utilities Regulation, Bank of Jamaica and the Ministry of Finance will continue to pay at the rate of 33.3 per cent. This measure takes effect January 1, 2013.
jba supports gov't quest
The JBA said it was cognisant of the severe economic and fiscal challenges facing the country at this time and that it has always supported the Government in its quest to find solutions to address the structural economic imbalances and to generate growth.
"This commitment was displayed in 2010 in the Jamaica Debt Exchange exercise whereby the financial sector supported this programme recognising it was a necessary step for Jamaica," stated the release.
The association said that while Jamaica's banks support the Government's objective and recognised that all Jamaicans must share the burden currently before the country, "in light of last week's announcement of proposed revenue measures by the Minister of Finance and Planning, it is important that these measures are distributed appropriately".
However, it said that based on what was presented, the financial sector would bear a large portion of the revenue requirement.
Against the background of the threat to the competitiveness of the sector if the high tax rates are protracted, the JBA also argued that a vibrant financial sector is critical to a country's economy, especially one that is on a path of recovery.
"Jamaica's banks continue to play a pivotal role in the financial and labour markets, as well as in the consumer lending and business environment spaces of the country," the release stated.
However, the association said it remained steadfast in promoting a safe, sound and vibrant banking sector, and in contributing to the overall health and sustainability of the Jamaican economy.