Rum punched - Reduction in waivers set to impact spirits, other industries

Published: Monday | February 18, 2013 Comments 0
Brian Pengelley
Brian Pengelley
Christopher Zacca
Christopher Zacca

Nedburn Thaffe, Gleaner Writer

Plans by the Government to slash millions of dollars in discretionary tax waivers once afforded to the manufacturing sector could see the rum industry being hardest hit, according to president of the Jamaica Manufacturers' Association (JMA), Brian Pengelley.

While pointing out that this was not the only area of the sector that runs the risk of being shut down under the Government's soon-to-be implemented policy on waivers and incentives, Pengelley said the rum industry was heavily dependent on molasses, with more than 60,000 tonnes imported annually.

"The distillers in Jamaica who export rums abroad to blenders buy all the molasses that is available in Jamaica, but Jamaica does not produce enough molasses, so, therefore, they have to rely on imports. These have been coming through the waiver system," said Pengelley, who is also sales director at Red Stripe, distributor of wines and spirits for parent company, Diageo.

"We are asking for a very favourable consideration on that because there is no way that we can afford to shut the distilleries down or increase their cost," he said.

As part of its agreement with the International Monetary Fund (IMF), the Government has said it would be reducing discretionary tax waivers. The Government said it intends to implement a reformed tax-waiver system which would see a cap being placed on three categories.

The areas include charities, which will be allowed $250 million in waivers per month; legal/contractual and government projects, $70 million per month; and $10 million per month on all others.

Of the $352.5 million in waivers granted in September, some $17.3 million was granted to the manufacturing sector.

Yesterday, president of the Private Sector Organisation of Jamaica (PSOJ), Christopher Zacca, in concurring that the rum industry was in trouble, said it was difficult to foresee business as usual in the absence of the waivers.

"Without such waivers, in the interim between now and when the new incentive laws are drawn up, the rum industry will be hard-pressed to keep its doors open once the molasses runs out," Zacca said.

Zacca's comments came the same day his PSOJ issued a release which, among other things, urged the Government to immediately review and change its tax treatment of certain raw material inputs under the new waiver caps.

"Unless modified, this proposed tax treatment will likely force the shutdown of critical Jamaican industries and cause thousands of Jamaican workers to lose their jobs," the release stated.

The PSOJ, whose members unanimously expressed disappointment in the Government's $15.9-billion tax package at an emergency meeting Friday, also called for a priority review of the policy of not taxing Caribbean Community imports while increasing the taxes on Jamaican manufacturers.

In addition, Zacca said the Government should indicate what cost-cutting sacrifices it would itself make alongside the rest of Jamaica's citizens.

Pengelley, in making his case for the Government to reconsider its new policy, pointed out that the manufacturing sector was afforded "a fairly small part" of the overall value of discretionary waivers.

Additionally, he said that because of the country's heavy dependence on imported sugar, if players in the beverage industry are asked to pay duties on imported sugar, then the result could be crippling for both manufacturers and consumers.

"We would be in a non-competitive position to imports, as well as (with regard to) our cost passed on to the consumers," Pengelley argued.

He said there was also no doubt that a number of jobs could be lost if the Government fails to reconsider its measures.

The JMA president said the Government's new position on waivers has left the sector to question its commitment to improving the country's growth strategy.

"There is no way we can say that we are going for growth, to produce locally and then to be taxing people that are investing in Jamaica," he said.

"At the moment, most machinery comes in duty and GCT (general consumption tax) free. To remove those waivers and to tax machineries that are coming in for the modernisation, expansion or even in new investment in the manufacturing/productive sector is very regressive."

He added: "We don't have a solution on energy which is a very high cost to the manufacturing sector."

Pengelley said while he was not at liberty to say the amount of waivers the sector was willing to settle on, there were certain basic principles that he feels must govern the sector.

"The principle is that you cannot be putting duties on import products that are going to drive efficiencies in the manufacturing sector or put plants at risk of closing," he said.

nedburn.thaffe@gleanerjm.com


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