Sinking like the Titanic!
Samuda warns Government that it is destroying the productive sector to please IMF
OPPOSITION SPOKESMAN on Industry, Karl Samuda, says Jamaica risks wiping out the productive sector in order to meet the dictates of the International Monetary Fund (IMF).
Arguing against provisions of the omnibus tax incentives regime in the House of Representatives last Tuesday, Samuda said the multi-lateral "does not understand the need for tax incentives".
"We are engaged in a process of debate with a partner that has a philosophical and fundamental difference in approach to economic development. The IMF is primarily interested in collecting debt," charged Samuda.
Jamaica has inked a four-year Extended Fund Facility pact with the IMF as the country seeks to reduce its massive building-up of debt and attain sustainable growth.
A key structural benchmark in the programme is for the passage of an omnibus tax incentives regime by yearend.
"Sometimes when we focus on passing tests, we find that we dodge the ball in order to pass the test," charged Samuda.
He argued that special consideration should be given to the productive sector, which is critical if Jamaica is to experience sustained growth.
However, Finance Minister Dr Peter Phillips countered that the benefits to be accrued under the new incentives regime will be a boost to the productive sector.
Phillips noted, for example, that there will be a new duty regime which will allow productive inputs to be imported at zero duty.
"Compared with the current incentives system with offers significant and, in some instances, full relief from income tax only for certain selected industries with higher rates on income tax, this will provide benefits for all businesses," said Phillips.
One such benefit, the minister pointed out, is the reduction of corporate income tax from 33.3 per cent to 25 per cent as of January 1, 2014.
"This new income tax regime does not discriminate in favour of one unregulated business activity over another.
"This reduces the possibility for misallocation of resources that would otherwise exist where the tax regime attempts to pick winners by offering preferential income tax to certain favoured sectors," Phillips said.
But according to Samuda, "in a developing country, we have to cherry-pick, and that cherry-picking must apply to the productive sector".
"If you do not give appropriate incentives for people to engage in the employment of people in a factory environment, in a transformation from agricultural raw materials to a finish product, if you don't give them something to work with, why should they do that when all they have to do is go to China or anywhere else and get goods and sell it," Samuda said.
Phillips, meanwhile, has said that unregulated companies and unincorporated business will be entitled to an employment tax credit, which is the total statutory deductions by both employers and employee contribution paid by employers, and includes education tax, HEART, NHT and NIS contributions.
"The employment tax credit will only be applicable to income tax payable from a trade, vocation or profession, and includes income tax liabilities arising from passive or non-trade income such as investment," Phillips said.
New capital allowance rules will also be introduced for capital expenditure as of January 2014.
Phillips said that under the new regime, a taxpayer is able to write off a factory building, for example, over the useful life of the asset.
"Now is the time for us to do all that we can to achieve growth," Phillips said, while acknowledging that there is room for improvement in the kinds and levels of incentives now offered.
Meanwhile, as the House Representatives said 'ayes' signalling the passage of the bills, Samuda muttered: "Let us hold hands and sing and go down with the Titanic."