28 March 2019 Jamaica issues 2019/20 budget with focus on growth with equity The Government of Jamaica (GOJ) tabled its Estimates of Expenditure in the House of Representatives on 7 March 2019. In his first Budget Presentation, the Minister of Finance and the Public Service, Dr. the Honourable Nigel Clarke, MP, projected gross expenditure of $835.9 billion1 for the 2019/20 fiscal year comprising:
The Minister stated that gross domestic product (GDP) growth was 2% for the first half of the fiscal year and estimated to be 1.9% for the Government's 2018/2019 fiscal year. He also stated that Inflation was stable and low, the Central Bank's policy rate was a record low of 1.5% in February 2019 and unemployment was at its lowest in Jamaica's history. In November 2016, the GOJ cancelled the International Monetary Fund (IMF) Extended Fund Facility Arrangement and signed a new three-year US$1.64 billion Precautionary Standby Arrangement with the IMF which is expected to end on 10 November 2019. The Minister stated that since the start of this Precautionary Standby Arrangement, Jamaica has had no need to draw down or borrow funds from the IMF.
The Minister announced that the Assets Tax that is imposed on non-financial institutions would be abolished commencing with the 2019 year of assessment. The Assets Tax was restructured in 2012 and at that time its due date was moved to 15 March of each year. In 2014, the Assets Tax for non-financial institutions was increased as follows:
The Minister indicated that he is removing the Assets Tax because it is distortionary. He further stated that the removal of the Assets Tax reduces the costs of micro and small businesses and better aligns taxation with profitability, thereby encouraging greater risk-taking business activity and encouraging small business formation. The Government's abolition of the Assets Tax that was payable by non-financial institutions is effective for year of assessment 2019. Tax Administration Jamaica (TAJ) in a news release dated 13 March 2019, advised that non-financial Institutions will not be obligated to file a 2019 Assets Tax Return Form and there is no Assets Tax payment due for the year of assessment 2019, on or before 15 March 2019. TAJ has stated that those non-financial Institutions which have already made payments for their 2019 Assets Tax are entitled to a refund of the amount, once it is determined that there are no outstanding Assets Tax for previous years. Taxpayers may also write to TAJ to request that the Assets Tax amounts be used to offset other tax liabilities or for the amounts to be refunded. The 2012/13 Budget introduced a minimum business tax of $60,000 and it was imposed on all registered companies and self-employed persons effective 1 January 2013. This MBT did not apply in the first 24 months of an entity's operation and did not apply to charities and persons falling under Section 12 of the Income Tax Act. However, companies operating under tax incentive legislation, self-employed professionals such as lawyers, doctors and consultants were required to pay the MBT. It was introduced in 2013 in an attempt to bring within the tax base, companies and self-employed persons that were not paying income tax. It accomplished the desired effect and led to the deregistration of numerous dormant companies due to the added costs involved. The Minister indicated that like the Assets tax, he is removing the MBT to reduce the costs to micro and small businesses; better align taxation with profitability thereby encouraging greater risk-taking business activity, and encourage small business formation. During the 2019/2020 Budget, the Minister announced an increase in the GCT threshold to $10 million from $3 million effective 1 April 2019. In 2009, the annual GCT threshold was increased to $3 million from $1 million so the 2019 increase to $10 million is once again at least three times the amount of the previous limit. In 2009, the Bank of Jamaica's average US$ exchange rate was $88.28 for US$1 and for 2018 it was $129.72. Thus, the US$ equivalent of $3 million was US$33,982.78 in 2009 and US$23,126.73 in 2019. This means in US$ equivalent terms the GCT threshold in 2018 was approximately US$10,000 less than it was in 2009 when the GCT threshold was increased, simply because of the devaluation of the Jamaican dollar. The new GCT threshold of $10 million in 2019 is the equivalent of approximately US$77,000 so the increase is approximately double what the GCT threshold was in US$ terms in 2009. This is a significant increase in the GCT threshold and will result in more than 3,500 micro and small businesses no longer needing to register and file GCT returns. This reduces the compliance burden for these taxpayers. However, for taxpayers who are normally in receipt of GCT refunds, they would be better off registering if the GCT they pay exceeds the GCT they collect in their businesses. Nevertheless, based on the Government estimates more taxpayers benefit than lose from this initiative. During his closing speech on 20 March 2019, the Minister clarified that he would reinstate the provision in the GCT Act which empowers the Commissioner to re-register an applicant under voluntary registration regime should that be the preference of the business. The Commissioner will retain the discretion to accept the re-registration for GCT. The Minister announced on 20 March 2019 that effective 1 April 2019 the Government will abolish and replace with a flat fee of $5,000 per document, the ad valorem stamp duties applicable to the processes of:
The Stamp Duty Act is complex and has many different rates determined based on the type of document that is stamped. On 20 March 2019, The Minister further clarified that Ad Valorem Stamp Duty payable on any instrument pursuant to the Stamp Duty Act will be replaced with a flat Stamp Duty of $100 per document/parcel related to transactions valued below $500,000 and $5,000 per document related to transactions valued at $500,000 or more. He also noted, the ad valorem calculation for Betting and Gaming tickets will remain unchanged. The proposed rate change is expected to simplify and reduce the stamp duties charged on documents that are used in real estate transactions and for business loans. The Minister indicated that this measure is expected to stimulate greater competition and activity in, and access to credit markets; increase property development and real estate activities; and increase economic growth and job creation. However, it currently takes many months and sometimes years to transfer real property in Jamaica due to the administration of the tax, so the expectation of the Minister for this reduction to stimulate economic activity also depends on whether documents can be stamped quickly. The Minister announced the reduction of the Transfer Tax payable on the transfer of real property and financial instruments from 5% to 2% effective 1 April 2019. It appears that this reduction in the Transfer Tax applies only to real property transfers and not to the shares of companies that own real property but the legislation is needed to clarify this issue. The Transfer Tax has been in existence for many years and it was reduced to 6% from 7.5% effective 1 May 2008, by the then Minister of Finance, the Hon. Audley Shaw. It was then reduced further to 4% effective 1 January 2010 by Minister Audley Shaw. However, effective 1 April 2013, the Transfer Tax was increased to 5% by the succeeding Minister of Finance, Dr. Peter Phillips. It is hoped that similar to the proposed changes to the Stamp Duty, this measure will further stimulate property development and real estate activities, and drive economic growth and job creation. However, the long process of transferring property in Jamaica is also due to the valuation of the property, the various documents that need to be stamped and verified and also the process of obtaining a mortgage. Therefore, the process also needs to be reformed to ensure documents are transferred faster through the system to speed up the time it takes to get property transferred from one person to another in Jamaica. Increase in the Transfer Tax (i.e., Estate Tax) threshold applicable to the estate of deceased persons The Minister proposed an increase in the transfer tax threshold to $10 million from the current $100,000 for the estate of deceased persons. The current Transfer Tax applicable to estates of deceased persons is 1.5% of the value of the estate, including real property and shares, in excess of the threshold less deductions and expenses incurred. On 27 April 2011, former Minister of Finance, the Hon. Audley Shaw reduced the transfer tax on estates to 1.5% from 4% and reduced the stamp duties to flat rates that reached a maximum of $25,000. Minister Clarke announced that this increase in the Transfer Tax threshold was done so that beneficiaries of estates will be able to utilize the equity in inherited property to leverage economic opportunities. The potential revenue loss is $0.287 billion. The effective date for implementation is 1 April 2019. During its pre-election campaign, the Government committed to a reform of the Jamaican tax system and promised to lower taxes and create a business-friendly tax system. Therefore, these measures are trying to create a business-friendly system and are aimed at fulfilling an election promise. The tax reductions total $14.032 billion and are being funded by the reduction of the primary surplus from 7% to 6.5% and the additional revenues generated by the over performance of tax revenues. With a major reduction in the debt to GDP ratio from 147 to 96; a low interest rate environment; relatively low unemployment and low inflation, the economy should be growing faster than the predicted 1.9% in 2019. It is therefore expected that these measures will increase growth by stimulating the business activities in Jamaica, particularly the micro, small and medium enterprises. However, in order for these tax reductions to have the desired effect of stimulating the economy and returning even more tax revenue to the Government, will depend on how businesses spend the funds that these measures will free up. If the businesses in Jamaica use the funds from these tax reductions in the local economy, expand their operations, hire more people and spend locally, these measures should help the economy to grow at a faster pace. Document ID: 2019-0631 | ||||||||||||
