To promote employment, the Jamaican Government said companies of all nature which increase the number of workers during fiscal year 2013/2014 will be allowed a tax credit equal to a percentage of the payroll levies for new employees.
That is one of the specific elements to be included in the Omnibus Tax Incentives Act, a bill for which is expected to be tabled in Parliament by the end of October as part of the four-year loan agreement between Jamaica and the International Monetary Fund (IMF).
Sustained and rising unemployment has been a central theme in Jamaica's letters of intent from Finance and Planning Minister Dr Peter Phillips to IMF Managing Director Christine Lagarde, and dated April 17 and September 13, this year.
In the April memorandum of financial and economic policies, the Government pointed out that unemployment has increased from 12 per cent at end-October 2010 to 13.7 per cent at end-October 2012. The Statistical Institute of Jamaica reported that its April 2013 labour force survey shows the unemployment rate at 16.3 per cent.
The Tax Incentives Act will implement a rule-based regime for limited tax incentives that will replace all existing schemes under which discretionary and statutory waivers and other tax benefits to businesses are granted.
In its updated memorandum of economic and financial policies sent to the IMF, the Government said all incentives outside the Omnibus Tax Incentive Act will be explicitly cancelled by that legislation, which will become the only source of such inducements.
According to the memorandum, the Omnibus Act will stipulate that new incentives will take the form of tax credits for personal and corporate income taxes only. Incentives will be defined as the amount credited against the corporate income tax and personal income tax in any fiscal year.
No Ministerial Discretion
Companies choosing grandfathering - using pre-existing incentives schemes - will not be entitled to new incentives or lowered effective corporate income-tax rates until those grandfathered incentives have expired.
The Omnibus Act will provide that there will be no ministerial discretion in granting tax incentives.
Incentives provided under the Urban Renewal Programme will be maintained. Existing ones for venture capital investment will be kept "at this stage", but will be subject to a review that has been initiated recently, the memorandum said.
It said that for pioneer 'mega' projects that are growth enhancing, specific tax credits could be provided in the context of the budget, with parliamentary approval up to an overall annual cap of 0.25 per cent of gross domestic product "on this expenditure."
The existing regime for the establishment and operation of export free zones "will be maintained at this stage," the memorandum said.
However, it added that "this regime will be subject to review to ensure compliance with commitments to the WTO (World Trade Organisation) and to ensure that the covered enterprises will be subject to CIT (corporate income tax) on profits."
Laws to be affected by the Omnibus Tax Act
The Omnibus Incentives Act will repeal the following pieces of legislation: The Cement Industry (Encouragement and Control) Act, The Export Industry Encouragement Act, The Foreign Sales Corporation Act, The Hotels (Incentives) Act, The Industrial Incentives Act, The Industrial Incentives (Factory Construction) Act, The International Finance Companies (Income Tax Relief) Act, The International Finance Corporation Agreement Act, The Motion Picture Industry (Encouragement) Act, The Petroleum Refining Industry (Encouragement) Act, The Resort Cottages (Incentives) Act and The Shipping (Incentives) Act.
The Government said tax relief provisions under the Income Tax Act, which provide for deduction for additional workers, and tax relief for prescribed agricultural activity, are also to be repealed.
The following incentives are to be retained: The Urban Renewal (Tax Relief) Act, The Jamaica Export Free Zones Act, The Bauxite and Alumina Industries (Encouragement) Act (regulation of bauxite mining and alumina production), The Bauxite and Alumina Industries (Production Levy) Act (imposition of production levy and power to remit or refund the levy), The Bauxite and Alumina Industries (Special Provision) Act (exemptions from transfer tax, stamp duties and fees; income tax credited against production levy; income tax may be required to be paid in US dollars), and Sections 36A, 36B and 36C of the Income Tax Act (tax relief for approved venture capital company).