Avia Collinder, Business Reporter
A decade-old policy that dictates the price at which employees inside the financial sector can borrow is under revision following sustained appeals to lift the threshold, Tax Administration Jamaica (TAJ) confirmed this week.
The ceiling on the untaxed portion of loans acquired at concessionary rates from a financial institution as employer was set at $1.5 million in October 2002. Tax was payable on the differential between the concessionary rate and a prescribed rate of 14 per cent for loans exceeding the $1.5 million.
For a loan of $2 million for example, tax would apply only to the interest payments made against $500,000 of the loan amount.
Eligible workers include those working with the Bank of Jamaica, merchant banks and trust companies, development banks, insurance companies, building societies, and any other institution licensed under the Banking Act or the Financial Institutions Act
Those who benefit from the law now say that the 14 per cent rate reflected Treasury bill yields at the time and is outdated, and needs to be lowered to reflect current performance of market rates. T-bill yields are now at 6-8 per cent.
TAJ communications director Meris Haughton said the issue is being weighed by the policy committee of the Ministry of Finance and Planning.
The first $1.5 million of the loan is only exempt if it is used for purposes for a house for owner occupancy; purchasing a motor vehicle, for private use; purchasing land education; training; emergency needs such as a compassionate loan; and furnishing of residence for occupation by the owner.
Tax on the differential interest payments for loans above $1.5 million is applied at a rate of 25 per cent and deducted at source from the pay cheques of loan recipients.
"The request has been made for the limit to be increased," said Haughton, referring to the cap on the untaxed loan proceeds.
"We are aware of the request from a number of financial institutions for the matter to be looked at."
Concessionary loans to financial sector employees is treated as an employee benefit under the law and is therefore taxable.
Subsequent to 2002, the not-taxable ceiling for BOJ staff was raised to $7 million, while it remains at $1.5 million for other institutions.
It is unclear whether consideration is also being given to reducing the prescribed rate. Requests for an update from the Finance Ministry were unanswered.