Sun | Aug 1, 2021

ILLEGAL TAX

HEART told to remove levy from workers’ travel allowance

Published:Sunday | May 23, 2021 | 12:20 AMJovan Johnson - Senior Staff Reporter

The HEART/NSTA Trust’s corporate building at the corner of Oxford and Belmont roads in New Kingston.
The HEART/NSTA Trust’s corporate building at the corner of Oxford and Belmont roads in New Kingston.

The HEART/NSTA Trust could be facing millions in liabilities to hundreds of current and former employees it has questionably taxed for nearly two decades under an unauthorised fuel policy, which the finance ministry has ordered to be halted. It is...

The HEART/NSTA Trust could be facing millions in liabilities to hundreds of current and former employees it has questionably taxed for nearly two decades under an unauthorised fuel policy, which the finance ministry has ordered to be halted.

It is the latest in a series of troubling issues to have emerged about the operations of the State’s multibillion-dollar training agency which has caught the attention of lawmakers on Parliament’s Public Administration and Appropriations Committee (PAAC).

Under its Fuel Allocation Policy, HEART abandoned the traditional benefit of mileage paid to travelling officers and used instead a fuel-based approach, where it allocated petrol and taxed the amounts consumed by officers.

Mileage in government is a non-taxable allowance.

The finance ministry said that in March, it advised HEART’s parent ministry, the Office of the Prime Minister, of its decision and demanded the basis on which the fuel policy was implemented since it went against established government policies.

POLICY INCONSISTENT

A review, the ministry said, found the policy to be “inconsistent” with the public service staff orders and “in breach” of Section 5.15 of Circular No 8 (Travelling Allowance and Reimbursement of Toll Charges Financial Instructions dated May 20, 2020) and “all previous circulars on this subject”.

“HEART’s parent ministry was advised that implementation of the Fuel Allocation Policy by the HEART/NSTA Trust should cease and we understand that this has since been communicated to the HEART Trust,” added the finance ministry’s statement.

Sunday Gleaner questions on the issue were sent to the HEART on May 3, and despite several reminders – the latest being last Thursday – the entity is yet to provide any response.

Public-sector workers who are designated travelling officers and who use their own vehicles to do official duties are entitled to the non-taxable benefits of mileage and upkeep, which are used to cover wear and tear.

The upkeep is fixed based on the worker’s category of employment, while the mileage is calculated at a current rate of $56 per kilometre.

The public-sector staff orders and the 2020 circular on travelling allowance and reimbursement of roll charges do not permit entities to modify the mileage-based policy and do not allow the imposition on these reimbursable expenses.

HEART, for reasons unclear so far, has had its own practice for over 15 years, where it replaced mileage with the provision of 240 litres of petrol as a gas advance per travelling officer for official duties.

Costs associated with the consumption in one month are rolled into compensation the following month for the computation of payroll taxes.

“For example, for the month March, if I used 240 litres and it cost me $40,000. I’m not going to see the $40,000 on my March payslip. I will see it on April’s. I will see it coming in as taxable petrol and on the deduction side, it is taken out as taxable petrol,” an employee said.

“So, the higher the price of gas, the more it costs the worker in taxes, which reduces my disposable income.”

Crude calculations suggest that if an employee uses the entire 240 litres each month at current prices ($151 per litre of E-10 90), they would be charged a tax of $10,600 monthly or $127,000 per year.

The rate is taken from Petrojam’s May 20 update and does not include retailers’ markup. The rate for January 7 this year was about $115 per litre and $31.05 on January 6, 2005. Prices are significantly impacted by global events.

HEART currently employs over 1,500 persons, of which approximately 400 are reportedly travelling officers.

“They went off on their own in doing this and for all these years,” said a senior tax official not authorised to speak on the issue.

The Ministry of Finance’s decision came seven months after HEART was told by the country’s main tax authority that taxes should not be imposed on the amounts below 240 litres.

HEART, however, continued the tax and even after the March ruling of the finance ministry.

While the decision came after March salaries were processed, the tax was still applied for April and May 2021.

At a consultation over the issue on August 11 last year involving officials from Tax Administration Jamaica (TAJ) and HEART, it was suggested that the tax may have being conceived following an audit by the tax authorities.

Kevin Mullings, the senior director for the HEART Trust Fund, told the meeting that the tax on the reimbursable petrol advance had been in place since at least 2005.

He said a review then by the agency’s human resource department and Tax Administration resulted in the petrol component being passed through payroll and taxed, according to copies of the meeting’s minutes obtained by The Sunday Gleaner.

Lennox Frazer, one of three TAJ representatives at the meeting, explained that tax with travelling started with quasi and semi-government statutory bodies and that one of the issues was whether persons should get more than what was paid in central government.

HEART is a statutory body whose governance structure is outlined in its own legislation.

However, Frazer pointed to the so-called ‘Wayne Jones Ruling’, which stated that taxes should not be applied to amounts paid in line with approved rates.

“The only time taxes were to be paid was when the amount which was paid was in excess of the rates,” the minutes noted from Frazer.

ADDITIONAL PROBLEMS

Additional problems for HEART were also raised as the TAJ’s representative said the agency did not have records of the mileage accumulated by each travelling officer.

“The Trust had 240 litres of petrol which needed to be dedicated to official duties, and as such would be exempt from taxation,” the minutes said, summarising Frazer.

The official said this is where the mileage records are important as they would indicate the number of kilometres travelled for official duties as well as allowing a distinction between personal and work-related tasks.

Mullings reportedly questioned if the Trust was to avoid liability, it should track the mileage, to which the TAJ representatives agreed.

O’Neil Grant, president of the Jamaica Civil Service Association, which represents some HEART employees, said the agency should be asked to refund the workers who were taxed.

But he says affected workers are likely to face even more “disadvantages”.

“The organisation might say that they can’t pay back the employees until the Tax Administration Jamaica refunds them and that will be the subject of a long drawn-out audit by the TAJ to determine the nature and the extent of these allowances that were paid and taxed,” he said.

Grant added: “It is inadvisable to cause the workers to be left waiting while they go and try to sort out something that they ill-advisedly or without proper approval applied to the workers”.

The Jamaica Teachers’ Association says its members at HEART, drawn mostly from the cohort of instructors, believe the fuel policy is “illegal” and it is awaiting the final decision from the finance ministry.

CONTRACT CONTROVERSY

HEART has been in the spotlight in recent weeks over controversies surrounding the award of contracts to a company whose CEO, Edward Gabbidon, is the agency’s board chairman; and uncertainties around the entity’s leadership after the board chose not to renew Dr Janet Dyer’s contract as managing director.

Novelette Denton-Prince, a senior director, has been overseeing the agency’s operations since April 8. That stint was due to be completed on April 30 but has been extended to May 31.

A meeting planned for May 4, where leadership changes were expected to be announced, was postponed for “unforeseen circumstances”.

Because Dyer has returned to her substantive post as director/principal of the School of Hospitality Services in St Ann, HEART’s leadership is being forced to find a space for the person who was appointed to the position while Dyer was managing director.

Initially, the apparel arm, Garmex, was under consideration but sights are now set on Stony Hill Academy.

The Sunday Gleaner also previously revealed internal communication from procurement officials who believed a 2019 contract was recommended to Gabbidon’s company, SynCon, was a “clear conflict of interest”.

Although insisting that there was no interference, HEART is yet to answer whether the legal advice sought by the procurement officials was provided, and if so, when, what it said; as well as to confirm the value of all contracts awarded to SynCon since Gabbidon became chairman in April 2017.

HEART did not address those lingering questions in what it calls its “comprehensive” April 25 response to several Sunday Gleaner queries.

In a May 13 email, the agency said “if you are not satisfied with the response provided, you are encouraged to utilise legislation by way of the Access to Information Act to request any further information”.

An access to information request for details on all contracts awarded to SynCon since Gabbidon became board chairman, the legal advice sought by the procurement officials and related documents has since been submitted.

Lawmakers are to decide on June 2 when the HEART will be summoned before the PAAC to address many of those concerns along with the multimillion 2017 merger and the decision-making over how some senior executives are being paid.

jovan.johnson@gleanerjm.com