Foregoing personal income tax from a relatively small number of expatriates working in Jamaica in exchange for their transnational employers establishing their group headquarters here appears, on the face of it, a worthwhile idea - if it, in fact, leads to investments and jobs.
That is the premise on which Finance Minister Peter Phillips, last week pushed through amendments to the Income Tax Act, affording such concessions to approved group head office companies.
The requirement for this designation is that a multinational firm use Jamaica as the base from which it offers management of its subsidiaries and that, at least, 30 per cent of its staff be Jamaican citizens resident in the country.
The prima facie value of this legislation notwithstanding, we are surprised at the timing of its passage, which appears to us as another example of the failure of policy coherence on the part of the Simpson Miller administration, of which we have previously complained.
Tax reform is a fundamental agenda issue for the Government; it is one of the planks upon which a new borrowing agreement with the International Monetary Fund will rest.
As a precondition for the pact, which is also critical to the unlocking of resources from other multilateral financial agencies, the Fund is insisting on an efficient tax system, including ending the raft of waivers that are in the discretion of the finance minister to grant. A White Paper has been promised on the subject.
It would seem to us that it would have made better sense for the proposed income tax concessions to expatriates employed in the Jamaican headquarters of a transnational/ multinational to be part of the Government's reform package. It would have provided for a more comprehensive and rational debate of the matter, including an assessment of its fit in a wider scheme aimed at balancing short-term tax revenue and incentives to invest.
Dr Phillips suggested that he acted now because of "commitments", presumably by the previous administration, on which "some companies acted to establish group headquarters in Jamaica". That explanation, however, is not sufficiently compelling to have prevented a short delay to afford the public a strategic perspective of taxation policy.
But we are where we are. It is now for Jamaica to aggressively exploit the legislation to its advantage.
Unfortunately, we do not have an especially good record of extracting value from such arrangements.
For example, in 1984, Parliament approved the Foreign Sales Corporation (FSC) Act, providing tax-exempt status for subsidiaries of American companies, allowing them to use the island as a base from which to get US tax breaks on profits derived from exports. Jamaica would benefit from the services offered to the FSCs.
The country's general environment and lack of robust promotion of the scheme meant that we got only a handful before the Europeans attacked the FSCs as a way of providing US firms with export subsidies and a breach of the General Agreement of Tariffs and Trade.
Last year, legislation was passed to establish an agency to promote Jamaica as a venue for financial services. Little, insofar as we are aware, has happened.
Worse, there is the seeming lack of strategic coherence and cohesion between that authority, the export and trade promotion agency JAMPRO, and tax laws to promote investment.
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