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PwC
Phased Implementation
Proposed Implementation of Tax Reform
Green Paper proposes implementation in three phases:
1. Reform of International Trade & Indirect Taxes (SCT and GCT)
2. Corporate & Personal Income Taxes
3. Payroll Taxes
In the short-term, implementation of:
• specific tax policy reform measures (across each category)
• tax administrative reform measures
32 September 2011Carving the Path for Jamaica's Tax Reform
PwC
Reform of International Trade &Indirect Taxes (SCT & GCT)
42 September 2011Carving the Path for Jamaica's Tax Reform
PwC
Customs Duty
Reform of International Trade Taxes
Current Regime
Imposes customs duty at various rates (0% - 100%) on the customs valueof goods imported into Jamaica
Minimum rates on various categories of goods set by the CommonExternal Tariff (CET) – requires CARICOM approval to alter/suspend
Relief from duty given to various sectors (tourism, manufacturing,agriculture etc.)
Extensive ministerial waivers of duties
Perception that system is complex, inefficient and facilitates corruption
In 2009/10 - import duties collected (J$18 billion) were 3.7% of thevalue of the goods imported (J$486 billion)
Tariff codes imposing duty of 20% or less generate highest yields
52 September 2011Carving the Path for Jamaica's Tax Reform
PwC
Customs Duty
Reform of International Trade Taxes
Matalon Report
Indicated preference for unification of statutory rate with collected rate
Somewhere between 5% - 10%
Recognised CARICOM CET obligations represent a hurdle to reform
Green Paper
Proposes a maximum tariff rate (permitted by CET) of either:
• 20% - if Customs Administration Fee (CAF) is 5%
• 25% - if CAF is set at 3%
Care needs to be taken to evaluate each affected tariff heading todetermine whether there remains a legitimate basis for retaining a highercustoms duty rate (e.g. local market protection)
62 September 2011Carving the Path for Jamaica's Tax Reform
PwC
Reform of International Trade Taxes
Customs Duty
3969
130
341 422
1220
63 142
563
19 3 11
0
500
1000
1500
2000
2500
3000
3500
4000
4500
0% 5% 10% 15% 20% 25% 30% 40% 50% 75% 100%
Total Import Value (2009/10) = J$486.3 Billion
$8.4
$97.4 $22.5
$10.9
$14.6$32.4
$0.4$0.2 $0.3
Statutory Average Tariff = 9.9 %
$226.8
Tariff Rates
$72.8
Nu
mb
er
of
Tari
ffC
od
es
Source: IDB Jamaica Tax Reform Proposal
72 September 2011Carving the Path for Jamaica's Tax Reform
PwC
Other Import Duties & Charges
Reform of International Trade Taxes
Current Regime Green Paper Proposals
Customs UserFee (CUF)
Imposed at the rate of 2% on customsvalue of goods imported (certain reliefsgiven). Imposed at the rate of 5% onfinished petroleum products
Proposal to consolidate all these fees andcharges into a single CustomsAdministration Fee (CAF) to be imposedon ALL imports. Various rates beingcontemplated:
Rate Potential Revenue Yield
3% J$12.6 billion4% J$16.8 billion5% J$21.0 billion
CAF to be included in the GCT base
EnvironmentalLevy
Imposed at the rate of 0.5% on customsvalue of goods imported (subject to samerelief as given to customs duties)
StandardsComplianceFee
Imposed at the rate of 0.3% on customsvalue of goods imported (certain reliefsgiven).
CustomsProcessing Fee
Charged for the processing of certaindocuments submitted to JamaicaCustoms
AdditionalStamp Duty(ASD)
Imposed on Customs Inwards Warrantsof certain goods imported. Rates up to260% (including customs duty). Acts as amarket protection mechanism.
To be kept separate and retained toprovide “some level of protection to theAgriculture Industry” (paragraph 5.2.2. -Green Paper)
82 September 2011Carving the Path for Jamaica's Tax Reform
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Other Import Duties & Charges
Reform of International Trade Taxes
Customs Administration Fee (CAF)
Not recoverable by refund or credit.
Will add to the cost of goods imported including for:
• raw materials/capital goods imported by manufacturers
• capital goods imported by members of the agricultural sector
• operating inputs/capital goods for those under incentive (e.g. tourism)
• commercial imports generally (including basis food items)
Need to consider impact on competitiveness
Sustainability of CAF also needs to be considered including whether it is contraryto Jamaica’s obligations to:
- the World Trade Organisation (WTO) (under the GATT )
- CARICOM (under the revised Treaty of Chaguramas)
92 September 2011Carving the Path for Jamaica's Tax Reform
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Other Import Duties & Charges
Reform of International Trade Taxes
Additional Stamp Duty (ASD)
Imposed on the aggregate of the customs value of certain goods imposedplus customs duty assessable thereon
Provides a measure of protection to the local agricultural sector
If customs duty rates are reduced, ASD should compensate unlessaggregate duty rates (including ASD) are also reduced.
Need to ensure legitimate justifiable local market protection is notinadvertently removed
Examples of Goods on which ASD is imposed CustomsDuty (CD)
Aggregate Duty(ASD and CD)
Chicken: Whole Broilers, Chicken Leg Quarters, Legs, Thighs,Drumsticks, WingsBeef & Veal: Selected Cuts & ProductsPork : Selected Cuts and ProductsEggs (other than for hatching)Vegetables: Tomatoes, Cabbage, Lettuce, Carrots, Corn
100% 260%
102 September 2011Carving the Path for Jamaica's Tax Reform
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Other Import Duties & Charges
Reform of International Trade Taxes
Current Regime Green Paper Proposals
AdvanceGeneral
ConsumptionTax
(GCT)
Imposed at the rate of 5% on GCTtaxable goods imported by commercialimporters excluding:• petroleum products;• capital goods;• goods imported under the GCT
deferment scheme e.g. raw materialsfor the purpose of manufacturing;
• goods that are zero rated or exemptfrom GCT;
• telephone instruments; and• goods imported on which an uplift fee
is chargeable under the GCT Act.
In effect GCT is collected at the port atthe rate of 22.5% [17.5% + 5%]. May beclaimed as a GCT input tax credit whereappropriate
Proposal to impose on ALL commercialimports (excluding bauxite and petroleum)
To be creditable against any tax type(excluding the CAF). Consideration beinggiven that it would be creditable but notrefundable.
Various rates being contemplated.
Rate Potential Net* Revenue Yield
3% J$2.6 billion4% J$3.5 billion5% J$4.3 billion
* assuming 80% recovered by way of credit
112 September 2011Carving the Path for Jamaica's Tax Reform
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General Consumption Tax Rate
Reform of Indirect Taxes
Current Regime Matalon Green Paper Proposals
StandardRate
17.5% Increase to 16%(was 15% at the time)
Reduce GCT Rate to 12.5% or 15%by 1 January 2012 (depending on
other reforms)
Non-Standard
25% imposed ontelephone services and
handsets
Eliminate non-standard ratesNot specifically addressed
Tourism 10% charged on tourismactivities
Eliminate non-standard rates No change proposed. Tourismactivities will pay CAF on imports
Electricity 10% on residential (above200KW per month) andcommercial/industrial
GCT to be imposed on utilitiesat the standard rate No change proposed
Basic Foods& OtherExemptGoods
Currently exempt fromGCT and no recovery of
GCT input credits
GCT to be imposed on at thestandard rate (with some
exceptions) + a Social FundGCT on real estate
Proposal to impose at standard rate(particularly re. basic food items)Support with social expenditure
ExemptServices
Currently exempt fromGCT and no recovery of
GCT input credits
GCT to be imposed at thestandard rate (with some
exceptions) e.g. construction,transportation
Not specifically addressed
122 September 2011Carving the Path for Jamaica's Tax Reform
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General Consumption Tax Rate
Reform of Indirect Taxes
Green Paper Proposal:
The following sensitivity analysis is offered for consideration:
StandardGCT Rate
Potential Revenue Loss uponreduction of standard GCT rate
Potential Revenue Gain whereimposed on exempt goods
17.5% None - (current rate) J$7.79 billion
17% J$1.6 billion not provided
16.5% J$3.2 billion not provided
16% J$4.8 billion not provided
15% J$8.1 billion J$6.67 billion
14% J$11.3 billion not provided
13% J$14.6 billion not provided
12.5% J$16.2 billion J$5.57 billion
Source: Green Paper - MOFPS
132 September 2011Carving the Path for Jamaica's Tax Reform
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General Consumption Tax - Other Matters
Reform of Indirect Taxes
Current Regime Matalon Green Paper Proposals
PetroleumProducts
Not subject to GCTSubject to both fixed and
ad valorem SCT
Impose GCT at thestandard rate in addition
to SCT
Proposes to retain the status quo(i.e. To leave petroleum products
outside of the GCT net)
Export Zero-rated Zero-rated Zero rated
Bauxite Can acquire supplies on azero-rated basis
Not specificallyaddressed
Proposes to retain the status quo
Input Crediton Purchase ofCapital Goods
Claimable over 3 months(formerly 24 months)
(MoIP suspended sincewaiver based)
Eliminate restrictionsProposes that an Input Credit be
claimable immediately on purchase ofcapital goods by all registered
taxpayers
Withholdingon Govt.
Purchases
Supplies to Governmentare zero-rated
Not specificallyaddressed
Proposes GCT be charged toGovernment but that Govt retain same
upon making payment
PartialWithholding
by LargeTaxpayers
No requirementcurrently
Not specificallyaddressed
Proposal to explore feasibility ofrequiring Large Taxpayers partially
withholding GCT on supplies acquired
142 September 2011Carving the Path for Jamaica's Tax Reform
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Corporate Income Tax (CIT) Rate
Reform of Corporate & Personal Taxes
It is recognised that Jamaica’s corporate income tax (CIT) rate is high/uncompetitive when compared to key regional counterparts
Subject to achieving fiscal targets/indirect tax performance, the GreenPaper proposes to reduce the CIT rate as follows:
CIT Rate With effect from Potential Revenue Loss
30% 1 January 2012 J$1.33 billion
25% 1 January 2013 J$8.33 billion
Source: Green PaperMOFPS
162 September 2011Carving the Path for Jamaica's Tax Reform
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Incentives
Reform of Corporate & Personal Taxes
Current Regime:
Contains a myriad of tax preferences, sectoral incentives and waivers
Effectiveness of our suite of incentives has been questionable
Has resulted in a narrowing of the taxable base
Matalon Report suggested that an incentive study be undertaken
Green Paper:
Proposes:
• An Omnibus Tax Code;
• A Tax Incentive Act (which will contain all incentives offered)
• Significant reduction in waivers and institution of rules-basedframework (including dollar limitations) for exceptional cases
172 September 2011Carving the Path for Jamaica's Tax Reform
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Capital Allowances Reform
Reform of Corporate & Personal Taxes
Relief for capital expenditure granted by way of capital allowance
Quantum of relief and write-off rates prescribed by law
Current regime is complex/inefficient/archaic
Matalon Report had proposed simplification of regime:
• Reduce to five asset categories
• Eliminate special treatment (basic industries, SCA etc.)
• Extend to expenditure on intellectual property
Current Regime Green Paper Proposals
Maximum relief for Motor Cars – J$3,200 Increase threshold to more meaningful level
Write-off in accordance with prescribed rate Immediate write-off once balance reaches a certain amount
No relief for intellectual property/intangibles Relief to be given for intellectual property/intangibles
Annual allowance write-off on buildingsIndustrial: 20% (IA) 5% RB (AA)Other: 0% (IA) 2.5% (AA)
Abolish annual allowances on buildings andgrant a one-time initial allowance in lieu
Source: Green Paper - MOFPS
182 September 2011Carving the Path for Jamaica's Tax Reform
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Minimum Business Tax
Reform of Corporate & Personal Taxes
Current Regime:
Current regime does not impose any minimum business tax
Authorities are concerned with taxpayers who make losses or minimalprofits on an ongoing basis
Matalon Report suggested that an Alternative Minimum Tax (AMT)warranted consideration in light of poor CIT performance
Green Paper:
Proposes to introduce a minimum business tax which will be payableirrespective of profitability
Doesn’t specify how it will be determined (e.g. whether on revenues etc.)
Also proposes to eliminate various trade license fees.
192 September 2011Carving the Path for Jamaica's Tax Reform
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Other
Reform of Corporate & Personal Taxes
Asset Tax:
Currently imposed on the value of the assets of Jamaican registeredcompanies – returns must be filed annually
Considered a nuisance tax and difficult to administer
Green Paper proposes abolition of Asset Tax
Contractors Levy:
Currently the levy is creditable (but not refundable) against income taxliability in the year it is suffered – no carry forward mechanism
Challenges being experienced by construction sector
Green Paper proposes to permit carry forward of unutilised credit for upto five years
202 September 2011Carving the Path for Jamaica's Tax Reform
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Reform of Corporate & Personal Taxes
Income tax is imposedon income in excess ofannual tax-freethreshold.
Threshold has increasedsignificantly (in bothJA$ and US$ termssince 2009 removingmore people from theincome tax net
0
100,000
200,000
300,000
400,000
500,000
Tax-Free Threshold (JA$)
0
1,000
2,000
3,000
4,000
5,000
6,000
Tax-Free Threshold (US$)
Personal Income Tax Threshold
212 September 2011Carving the Path for Jamaica's Tax Reform
PwC
Personal Income Tax Threshold
Reform of Corporate & Personal Taxes
Green Paper Proposal:
Subject to achieving fiscal targets/indirect tax performance, the GreenPaper proposes to increase the annual PIT threshold with effect from 1January 2012
Offers the following sensitivity analysis for consideration based onvarious PIT threshold increases (from current level of J$441,168):
Increase AnnualPIT threshold to
Additional Persons fallingout of the income tax net
Potential RevenueLoss
J$507,312 17,587 J$4.812 billion
J$600,288 39,415 J$5.523 billion
J$624,000 44,510 J$5.691 billion
Source: Green Paper - MOFPS
222 September 2011Carving the Path for Jamaica's Tax Reform
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Personal Income Tax Rate
Reform of Corporate & Personal Taxes
Current Regime:
PIT currently imposed at the rate of 25% on income in excess of annualtax-free threshold.
Green Paper Proposal:
Subject to achieving fiscal targets/indirect tax performance, the GreenPaper contemplates a possible PIT rate reduction by 1 January 2013and offers the following sensitivity analysis for consideration:
Matalon Report had recommended harmonisation of CIT & PIT rates
PIT Rate Possible Revenue Loss PIT Rate Possible Revenue Loss
24% J$2.06 billion 21% J$8.24 billion
23% J$4.12 billion 20% J$10.31 billion
22% J$6.19 billion Source: Green Paper - MOFPS
232 September 2011Carving the Path for Jamaica's Tax Reform
PwC
Payroll Taxes - Type and Rates
Reform of Payroll Taxes
Current Regime Matalon Green Paper Proposals
Pay-As-You-Earn(PAYE)
Income Tax
Deductible by Employer@ PIT Rate in excess ofPIT Tax-Free Threshold
No changerecommended
No changerecommended
EducationTax
Imposed on emolumentsEmployer: 3%Employee: 2%
AbolishEducation Tax
entirely
Amalgamate Education Taxwith Income Tax
(i.e. add EE (2%) to PIT Rate)
National HousingTrust (NHT)
Contributions
Imposed on emolumentsEmployer: 3%Employee: 2%
Consolidate with otherpayroll taxes for
administration purposesNo specific change proposed
NationalInsurance
(NIS)
Imposed on emoluments(up to J$1 million)
Employer: 2.5%Employee: 2.5%
Consolidate with otherpayroll taxes for
administration purposesNo specific change proposed
HEARTContributions
Imposed on emolumentsEmployer: 3%
Abolish and finance HEARTTrust directly fromConsolidated Fund
No specific change proposed
CSFBS(life insurance
policy)
Imposed at approx 4% ofemoluments of certainpublic sector workers
Recommends thatscheme be privatised No specific change proposed
252 September 2011Carving the Path for Jamaica's Tax Reform
PwC
Administrative Reform
Tier 1 Reforms (for immediate implementation)
ICTAS System Modification
• Overhaul mechanism by which payments on account are applied
• Interest to be computed on a simple interest basis (instead of on acompound basis)
• Set-off against of payments various tax types
• Fixed framework to facilitate instalment plan payment arrangements
Tax Administration
• Issue of public rulings through the Revenue Appeals Division
• Implementation of a sustained education programme for bothtaxpayers and tax administrators
• Strengthen enforcement provisions (e.g. concerning forcedregistrations and income tax assessments)
27Carving the Path for Jamaica's Tax Reform 2 September 2011
PwC
Administrative Reform
Tier 2 Reforms (for implementation from 1 Jan 2012)
Compulsory Filing of Tax Returns
• Initially to be applied (from March 2011) to all professionals(whether employed/self-employed).
• Proposal to extend filing to all residents by March 2014
• Proposed compulsory electronic filing for large taxpayers andprofessionals
• Proposed e-filing of Employer Returns (particularly for public sector)
28Carving the Path for Jamaica's Tax Reform 2 September 2011
This publication has been prepared for general guidance on matters of interest only, and does notconstitute professional advice. You should not act upon the information contained in this publicationwithout obtaining specific professional advice. No representation or warranty (express or implied) is givenas to the accuracy or completeness of the information contained in this publication, and, to the extentpermitted by law, PricewaterhouseCoopers Jamaica, its members, employees and agents do not accept orassume any liability, responsibility or duty of care for any consequences of you or anyone else acting, orrefraining to act, in reliance on the information contained in this publication or for any decision based onit.
© 2011 PricewaterhouseCoopers Jamaica. All rights reserved. In this document, “PwC” refers toPricewaterhouseCoopers Jamaica which is a member firm of PricewaterhouseCoopers InternationalLimited, each member firm of which is a separate firm or legal entity.
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Tel: 1 876 922 6230Fax: 1 876 922 7581
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Tel: 1 876 952 5065Fax: 1 876 952 1273
http://www.pwc.com/jm
Eric Crawford, Tax Services LeaderDirect Line: (876) 932 8323Email: [email protected]
Brian Denning, PartnerDirect Line: (876) 932 8423Email: [email protected]
Viveen A Morrison, DirectorDirect Line: (876) 932 8336Email: [email protected]
Paul Cobourne, Senior ManagerDirect Line (876) 932 8350Email: [email protected]
Kimblian Batson, ManagerDirect Line: (876) 932 8378Email: [email protected]
Venneshia Sinanan Forde, ManagerDirect Line: (876) 932 8377Email: [email protected]
If you require specific advice on the implications of the information provided inthis publication or if you need any further information, please contact your usualPwC contact or one of our tax team members noted below: