GCT cut - Finance minister announces another ‘1.5’ tax break
Consumers will get an ease from the full burden of general consumption tax (GCT) with a 1.5 percentage-point reduction in the rate from 16.5 per cent to 15 per cent, effective April 1.
Finance and the Public Service Minister Dr Nigel Clarke announced the reduced rate yesterday along with other tax cuts that total $18 billion, as he opened the 2020-2021 Budget Debate in Gordon House.
The GCT cut will result in potential revenue loss of $14 billion.
The symbolism of the 1.5 reduction in GCT was not lost on members on the Government side who chanted “1.5” again – a throwback to the 2016 election promise by the Jamaica Labour Party (JLP) that has been widely credited to its victory at the polls. The Holness administration increased the income tax threshold to $1.5 million, giving many low- and middle-income earners a break.
When the JLP took the reins of Government in 2016, it introduced the policy over a two-year period.
“This is the first cut in the GCT rate since we introduced GCT rate in 1991 that was not accompanied by GCT being applied to other areas,” Clarke said.
“A cut in the rate of GCT will leave more disposable income in the economy which will boost economic activity, which would benefit all households and firms,” he added.
In November last year, government Senator Charles Sinclair told his colleagues in the Upper House that the Holness administration would consider favourably the proposal from Opposition Leader Dr Peter Phillips to reduce GCT. Phillips, who reiterated the call last week, had called for a two percentage-point cut in the consumption tax.
Opposition Senator Dr André Haughton had described Phillips’ recommendation as “bait”, suggesting that the proposal was unworkable and would have a negative cumulative effect across the board.
“If we are supposed to reduce GCT by two percentage points, moving from 16.5 to 14. 5 per cent, it will cost the country about $25 billion to $26 billion, assuming that every year we take $200 billion from GCT. Now this two per cent is going to cost the country $26 billion. That is the average cost,” Haughton said then.
The senator later apologised for publicly knocking the opposition leader’s proposal.
Clarke yesterday announced a reduction in the asset tax rate from 0.250 per cent to 0.125 per cent, resulting in a $3-billion revenue loss.
Members of micro, small and medium-size businesses will also get tax relief amounting to $375,000. This is because the Government is providing an income tax credit for both regulated and unregulated companies with revenue sales equal to, or less than, $500 million.