Phillips agrees to zero-rating for production inputs

McPherse Thompson, Assistant Editor - Business

The Jamaican Govern-ment is proposing to zero-rate import duties on essential inputs for domestic producers, the retention of which manufacturers have long identified as a barrier to the competitiveness of local products in the domestic and export markets.

The Government, under its reform programme, said it will also simplify the tax structure by reducing import tariff inequality and significantly reduce higher rates.

Minister of Finance Dr Peter Phillips, in a supplementary memorandum to the International Monetary Fund (IMF), appended to an updated letter of intent for the four-year Extended Fund Facility tabled in Parliament on Tuesday, said "import duties on essential inputs for domestic producers can be zero-rated" while maintaining compliance with the CARICOM tariff regime.

The Jamaica Manufacturers' Association (JMA) has consistently lobbied for the removal of import duties on inputs in the sector, saying that if that was done it would, among other things, lead to creation of more jobs.

JMA Deputy President Metry Seaga said he has not seen the updated memorandum, but believed the proposed zero-rate on inputs could be a reference to raw material and capital goods.

"Slowly as it comes, I must give kudos to the minister," Seaga told the Financial Gleaner.

General consumption tax (GCT) is payable to the Jamaica Customs Department on all imported goods and services, except those that are zero-rated, that is, attract zero per cent GCT, as well as those that are exempted, that is, do not attract the tax.

According to the memorandum, Jamaica will seek the support of the Inter-American Development Bank to strengthen the process in order to minimise abuse through a confined list of eligible inputs, strong administrative controls and appropriate penalties.

The list presenting such inputs will be subject to parliamentary review, the memorandum said.

That proposal is part of the broader tax reform the Government has agreed it will implement under the four-year IMF Extended Fund Facility.

The Government said it will simplify the tariff structure by reducing import tariff dispersion, eliminating anomalies and opportunities for misclassification and substantially reducing higher rates.

Import duties will be capped for non-agricultural imports, normally at 20 per cent, and in exceptional cases at 40 per cent.

For agricultural imports, tariff rates at or below 40 per cent will generally be reduced to the default rate of 20 per cent. However, in exceptional cases the Common External Tariff (CET) rates above 50 per cent will be maintained for goods such as poultry, vegetables and milk and cream, including milk powder.

"In any case, these rates will be held compliant with CARICOM/ CET agreements," the document said.

The Government said it also intends to promote amendments to the CARICOM tariff regime with the objective of further reducing the inequality of tariffs.

Under the IMF programme, the Government said it will eliminate the zero-rating for GCT regarding government purchases.

Noting that it will greatly reduce tax exemptions, the Government said in that context, a study of the scope for imposing GCT on petroleum products will be conducted and its conclusions will guide possible implementation in fiscal year 2014-15.

The programme also calls for the Government to allow for an initial reduction in tax rates, while maintaining the revenue neutrality for the overall tax reform.

"In particular," the memorandum said, "the reform will aim to reduce the effective corporate income tax through a combination of some or all of the following instruments: an initial reduction in headline tax rates for unregulated companies, the application of (non-refundable) investment tax credits, and streamlined and standardised capital allowances and/or accelerated depreciation, depending on the available fiscal room."

mcpherse.thompson@gleanerjm.com