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Selected sectors to participate in special economic zones

Published:Tuesday | July 21, 2015 | 11:50 AMMcPherse Thompson
Artist impression of the proposed Fort Augusta container terminal, one of several projects Jamaica plans to incorporate under its logistics hub initiative.

Businesses in established traditional sectors will be excluded from operating any of the 16 special economic zones the Government proposes to establish across the island as part of its logistics hub.

According to the latest memorandum of economic and financial policies the Government submitted to the International Monetary Fund (IMF), firms in the business-processing outsourcing and export-processing sectors can be eligible.

However, in particular, firms operating in the extractive industries - where materials such as oil and coal are obtained from drilling, mining and quarrying - as well as tourism, telecommunication services, public utilities, financial services, construction services, real estate and property management, health services (excluding research and development) and retail, or in other sectors that do not fit in the strategic objectives of special economic-zone development, will not be eligible.



The Government said it will create a new regime for special economic zones, that will replace the existing export free zones, in a manner compatible with World Trade Organization and Caribbean Community requirements.

The initiative aims to attract new economic activities to Jamaica, including logistics. It will support the provision of physical and human infrastructure, as well as a competitive regulatory regime, and exploit synergies.

Backward linkages to the rest of the economy will be key to maximising broader positive economic impact, the memorandum said.

A proposed structural benchmark of Jamaica's four-year IMF economic-support programme is that legislation governing the tax regime, that will be part of the special economic zones, will be tabled by the end of October, this year, consistent with the criteria to help safeguard the integrity of the tax system and avoid tax leakage.

Among the criteria is to restrict the eligibility to firms that meet preset conditions, thereby excluding businesses in established traditional sectors, with no ministerial discretion.

The Government will also allow zero rating of indirect taxes for eligible entities within the zones, subject to the establishment of an appropriate legislative framework to define forms and procedures, bonded-warehouse controls, administrative penalties and other sanctions against tax evasion.

direct tax regime

In addition, it will apply the same direct tax regime for firms in and out of the special economic zones, except for the possibility of streamlined procedures and reduced rates, while ensuring that enterprises operating in the zones will be subject to effective corporate income tax, except for temporary grandfathering of incentives granted under the tax regime for export free zones, and apply regular personal income taxation for workers.

Reduced corporate income tax rates for operators will be time-bound and non-renewable, said the June 2015 report to the IMF executive board.

Beyond the legislation establishing the special economic zones, further actions to enhance tax and customs administration will be critical for the successful implementation of its tax regime, in particular to strengthen inventory-management systems, notably for customs-related procedures, the memorandum said.

The Government said work is proceeding on the Caymanas special-economic zone, with World Bank support, with the issuance of the tender for the feasibility study in May 2015 on the basis of the results of the pre-feasibility study, which was completed in January 2015. The memorandum said feasibility study is expected to commence by August 2015.

Regarding the development of a transshipment port and industrial and commercial zones in the Portland Bight area, by China Harbour Engineering Company, the Government said technical feasibility studies have commenced.

This is a prerequisite for determining the construction methodology, and for obtaining the terms of reference from the National Environment and Planning Agency for the environmental impact assessment.

According to the memorandum, the project will be executed in phases with the first phase projected to be completed in the last quarter of 2016, pending the necessary approvals in each stage.