Avia Collinder, Business Reporter
Hoteliers are now more receptive to the new omnibus tax bill tabled in Parliament this week, even though it will eliminate the discrete laws that codified incentives for the tourism sector.
Instead, the legislation, now officially known as the Fiscal Incentives (Miscellaneous Provisions) Act of 2013 (FIA), aims for equity by streamlining incentives across industries - a new approach that two top hotel groups say could be good for the economy and actually lower the cost of business.
FIA will repeal the Hotels Incentives Act, which allows tax breaks for up to 15 years, as well as the Resort Cottages Incentives Act, which waives taxes for seven years.
"I think the streamlining of incentives across all industries is a good thing in the long run. I note that there are options and a phasing period for tourism incentives," said chairman of the SuperClubs resort group, John Issa, on Wednesday, a day after the bill was tabled by Finance Minister Dr Peter Phillips.
"As of now, I have not been able to do detailed calculations. However, if these actions lead to a more stable economy and society, the benefits to those in tourism will far outweigh any initial costs. In the past, I have asked the question, why should tourism need special incentives to attract investment? Because, if tourism is of such great importance, then the economy should be so structured to attract investment without special deals," Issa said.
However, Wayne Cummings, director of business processes and administration for the Sandals International Resorts group, says the new incentive structure is welcome, but adds - with agreement from JHTA President Evelyn Smith - that it creates uncertainty for investors.
Sandals projects that the new tax structure will lower the cost of business, but he also knocks the provision that seeks to 'coerce' hoteliers to give up the incentives granted under the current laws.
The hotel group has not yet reviewed the bill, but said the proposal off which the legislation was drafted speaks to reduced duties, taxes, fees, and, in some cases, increased additional stamp duties.
Sandals' review suggests that "there would be a real reduction in the cost of doing business in Jamaica and, more specifically, for our hotels, which, is as you would imagine, is well appreciated," said Cummings.
"Some of these measures have long been advocated for and seemed as if they would never have happened. Notwithstanding these proposals, we are not elated at how it [FIA] has been recommended for implementation by the tax committee and announced in the house last evening by the honourable minister of finance."
The FIA, using the special GCT paid by hoteliers as 'carrot', proposes that those who choose not to surrender the tax breaks already granted, will lose the 10 per cent GCT rate in January and, instead, be subject to the national rate of 16.5 per cent.
Sandals opposes the repeal of the Hotels Incentive Act and other similar tourism incentives.
"This is, in our view, a real, problem. The main issue would be one of certainty and our ability to plan large building, refurbishing investments," the hotel executive said.
The FIA fixes the corporate income tax rate at 25 per cent for all unregulated companies, including resorts. It also provides incentives for employment and capital investment; and grants tax breaks on the primary inputs to production.
The newly proposed employment tax credit could serve to reduce the effective income tax rate for businesses - corporate or individual - to as low as 17.5 per cent, as noted by KPMG Jamaica in a bulletin on the tax-reform programme published on Wednesday.
The Hotels Incentives Act provides income-tax relief and import-duty concessions for up to 10 years for approved hotel enterprises, and 15 years for convention-type hotels with no less than 350 bedrooms and facilities for the holding of conferences.
Resort cottage developers get income-tax relief for up to seven years and duty concessions on imported building materials and furnishings.
The repeal of these laws, said Cummings, will likely lead to reduced regional competitiveness.
"It is important to note that other destinations seeking large hotel investments are giving between 25 and 30 years on specified incentives that is extremely attractive to the investment community; and by comparison Jamaica will, without the certainty of the HIA or similar legally binding agreement between the investor and the state, lose out on some of the most serious projects," said Cummings.
"Additionally, the Government is seeking to encourage holders of HIA incentives to turn in that facility to access the proposed lower tax structure of the omnibus incentives."
For investments or projects previously granted incentives, the FIA allows the investor to keep those tax breaks until they expire, or as noted by KPMG, they can elect to terminate them by a specified date and come under the new general rules.
Benefits will be phased out eventually, but effective July 1, 2014 the current tourism GCT rate of 10 per cent will be terminated for those who choose to hold on to the HIA and other incentives until the tax breaks expire.
"Also, hotels and resort cottages which continue under the existing incentives regime will not be able to claim initial allowances for pre-January 1, 2014 capital expenditures at the end of the existing incentive period," said KPMG's tax analysts.
Evelyn Smith, president of the JHTA, said the provisions inside the proposed law were known to the sector beforehand, but she too knocked the Government for trying to coerce changes immediately.
"The grandfathering is obviously the correct thing to do. The concern that we would have is giving a deadline for persons to switch over to the new system or have it imposed on them. That is problematic and most unfortunate," she told the Financial Gleaner.
"We have noted the price competitiveness issues under which our members operate. There are also investments decisions made based on a number of factors. Now, these factors are due to be changed. There is no surety. You don't know what will be changed next year or the year after, and people would like to project their investments beyond that."
The JHTA says once it reviews the bill, the group will model its potential economic impact on the sector.
But Smith also said there are other amendments pending, which have to be considered.
" My understanding is that there will be additional issues relating to import duties. We will wait and see how that pans out. A significant part of our purchases come from local suppliers, but there are many items - capital type and operating supply items - which we must import," she said.