YEA: Gov’t taking wrong approach with tax credits, stimulus packages for small biz
Tax Administration Jamaica says it will be forgoing a little over $1 billion in revenues annually to facilitate a special income tax credit of $375,000 to entrepreneurs falling within the micro, small and medium-sized enterprises, or MSMEs.
The amendment to the Income Tax Act took effect on January 1, 2021, and will be available for both regulated and unregulated MSMEs that earn up to $500 million each year, and are compliant on the filing of their tax returns.
The tax credit comes behind a grant of $800 million to small business owners aimed at buffering the effects of fallouts caused by the outbreak of COVID-19. Small businesses with sales of less than $50 million and which filed taxes for 2019-2020 were eligible for a $100,000 cash grant.
Separately, $1.2 billion has been made available for grants to small businesses operating within the tourism sector.
The measures are all meant as a cushion for MSMEs, considered the most vulnerable grouping of business operators whose access to capital on the private credit market is not always seamless.
Minister of Foreign Affairs and Foreign Trade, Kamina Johnson Smith, who piloted the tax credit bill in the Upper House in December, has described the move as a measure “now needed more than ever” to assist MSMEs grappling with the effects of the COVID-19 pandemic.
“MSMEs make up more than 95 per cent of all classified taxpayers and the Government is therefore determined to continue to recognise their importance and to encourage their growth. This is by creating a framework of measures and solutions that help MSMEs overcome the challenges that traditionally have hindered their growth and development,” Johnson Smith said.
But Cordell Williams-Graham, president of the Young Entrepreneurs Association, YEA, while noting that the sector is grateful for any assistance from the Government, particularly now when the coronavirus is decimating businesses, says her organisation has a different view on the approach the Government should be taking when providing assistance to young entrepreneurs.
“Stimulus packages and tax credits are good, but they are a drop in the bucket for MSMEs; and so I believe a more institutionalised approach would have a greater impact on business owners,” Williams-Graham said in an interview with the Financial Gleaner.
She is pushing for government assistance in the form of grants or other non-cash support to be channelled through business associations with national reach, such as the YEA, the Small Business Association of Jamaica and The MSME Alliance, to facilitate more targeted and meaningful support to entrepreneurs.
The idea, she said, is to use Government funding to set up low-cost co-working spaces for entrepreneurs, particularly start-ups with personalised reception services, large-scale training through accelerator programmes as well as programmes to institute housing, health and pension benefits for self-employed individuals.
The call for a more institutionalised approach has got a nod from the president of The MSME Alliance, Donovan Wignall.
Currently, initiatives taken on by the associations are either self-funded, or sponsored by either private sector institutions or the state-run Development Bank of Jamaica. Work performed by the association heads is also voluntary.
Services offered by the trade associations to entrepreneurs and small businesses include training, coaching, mentorship, and on a smaller scale acceleration programmes which cover business model canvassing and pitching. But they want to do more to help their members cope with unexpected shocks, and Williams-Graham is calling for help from the Government.
“For example, low-cost lease arrangements to the associations would allow us to quickly respond to challenges business owners are having with paying their rent with sometimes little to no sale from COVID-19 restrictions,” Williams-Graham said.
“The Government listened to us when we asked a seat at the table where business decisions are made, and now we are a part of the National Competitiveness Council. We hope the Government will listen to us this time too because it would be a win for both the Government and the business sector,” she said.
She added that if funds or non-cash support services are channelled through associations, business owners will be more inclined to formalise their ventures, get registered and become part of an association. It would also help the Government meets its objective of getting more businesses into the formal economy, the YEA president said.