Where there is a business, there's a tax!
Correction & Clarification
The byline template for Everald Dewar, the writer of a guest column titled ‘Where there’s a business, there’s a tax!’ in the Financial Gleaner of May 30, 2014, appeared with the wrong photo.
Everald Dewar, Guest Columnist
The payment of taxes is not some kind of divine penance or a natural state of affairs. It is the law and like all laws it needs to be obeyed.
However, it is a funny kind of law. Most laws impose a code of conduct to prevent us from harming our neighbours. The responsibilities of the sovereign is to raise revenues for running the government, however a lot of persons sees tax as designed simply to deprive us of our money and, as a consequence, it is a very sensitive matter.
The fear is that if Government can deprive people of their property without good reason, they can do other things as well, such as depriving us of our liberty or even our very lives.
Take, for instance, if someone were to tell you that there is a new provision in the tax legislation giving the tax commissioner the right to impose a blanket tax on businesses, which has reference to nothing and that there, effectively, is no right to appeal this tax.
You might be sceptical, incredulous, outraged, or any other adjective you care to mention. But such a power does exist in the recently imposed Minimum Business Tax (MBT).
And so it came to pass that an MBT was introduced whereas it is imposed on all businesses. This tax is to be paid at the rate of $60,000 per annum - payable $30,000 in June and $30,000 in September 2014.
The Jamaican Government first announced its intention to introduce a flat tax in the 2012-13 Budget. At that time, it was contemplated that business in its first year of incorporation would be excluded from paying the tax. This, however, is not provided for in the provisional order and the MBT will be imposed on all businesses except charities.
Not an income tax
I am not convinced that this is an income tax at all.
Income tax is a tax, assessed on sources from which income flows. This means that there is an activity from which the income to be taxed flows, such as profit from a trade or business, salaries from employment, rent from property or dividend and interest from investments.
The MBT is payable just on the fact that a company exists. It is much like the asset tax and far in nature from GCT or the controversial bank-withdrawal tax. There is not yet any widespread concerns of the width and depth of the MBT - and who will be able to tell?
The scope remains unclear, but, for sure, no activity or transaction needs arise to trigger the liability. It would seem that the MBT is a licence which imposed a fee on a company even if it is making a loss.
The second point to note is it appears that if the company is dormant it may still have to pay MBT. There is provision to the effect that while individuals can get a refund of the MBT, companies will not.
Some readers might be thinking 'that is not too bad, it is only $60,000', but the MBT is not replacing the normal liability to pay your income tax; it is in addition to it.
On the other hand, others might be wondering: Is this is the promised tax reform?
Successful tax reform in almost everyone's eyes meant tax reduction. However, given the size of the primary surplus to meet the IMF target the Government must resort to tax increases.
The MBT may force many small companies to de-register and go underground. The writer is not here in any way prescribing tax evasion or inciting, aiding and abetting taxpayers to take such action. Lest one is accused:
"We found this fellow perverting the nation, and forbidding to pay taxes to Caesar, saying that He Himself is Christ, a King" (Luke 23 v 2 ).
When all is said and done, as the saying goes: Where there is a will there's a way. If we have the determination to do something, we can always find the way.
Likewise, it matters not. The Government will be imposing taxes some way, somehow.
Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston.email@example.com