Jamaica issues 2019/20 budget with focus on growth with equity - EY
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
27 March 2019
Global Tax Alert
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,
NEW! EY Tax News Update:
the Minister of Finance and the Public Service, Dr. the Honourable Nigel Clarke,
Global Edition
MP, projected gross expenditure of $835.9 billion1 for the 2019/20 fiscal year
EY’s new Tax News Update: Global comprising:
Edition is a free, personalized email
• Non-debt expenditure of $528.8 billion Appropriations in aid of $32.7 billion
subscription service that allows
you to receive EY Global Tax Alerts, • Public debt service of $274.4
newsletters, events, and thought
The Minister stated that gross domestic product (GDP) growth was 2% for the
leadership published across all areas
first half of the fiscal year and estimated to be 1.9% for the Government’s
of tax. Access more information
about the tool and registration here. 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.
Also available is our EY Global Tax
Alert Library on ey.com. 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.2 Global Tax Alert
Overview of announced tax measures The Government’s abolition of the Assets Tax that was
• Abolition of the Assets Tax payable by non-financial payable by non-financial institutions is effective for year of
institutions. assessment 2019.
• Abolition of the Minimum Business Tax. Tax Administration Jamaica (TAJ) in a news release dated
13 March 2019, advised that non-financial Institutions
• Increase in the Annual General Consumption Tax (GCT)
will not be obligated to file a 2019 Assets Tax Return Form
threshold from $3 million to $10 million.
and there is no Assets Tax payment due for the year of
• Reform of the ad valorem Stamp Duty payable on any assessment 2019, on or before 15 March 2019.
instrument including the granting of security as collateral
for loans; with a flat rate stamp duty of $5,000 per TAJ has stated that those non-financial Institutions which
document. have already made payments for their 2019 Assets Tax are
entitled to a refund of the amount, once it is determined
• Reduction in Transfer Tax on property transfers from 5% that there are no outstanding Assets Tax for previous years.
to 2.0%. Taxpayers may also write to TAJ to request that the Assets
• Increase in the Transfer Tax threshold on the estate of Tax amounts be used to offset other tax liabilities or for the
deceased persons from $100,000 to $10 million. amounts to be refunded.
The following is a description of the tax measures that were The potential revenue loss from this tax change is
announced. $1.840 billion.
Abolition of the Assets Tax payable by non- Abolition of the Minimum Business Tax (MBT)
financial institutions The Minister announced the abolishment of the Minimum
The Minister announced that the Assets Tax that is imposed Business Tax effective 1 April 2019.
on non-financial institutions would be abolished commencing The 2012/13 Budget introduced a minimum business tax of
with the 2019 year of assessment. $60,000 and it was imposed on all registered companies and
The Assets Tax was restructured in 2012 and at that time self-employed persons effective 1 January 2013. This MBT
its due date was moved to 15 March of each year. In 2014, did not apply in the first 24 months of an entity’s operation
the Assets Tax for non-financial institutions was increased and did not apply to charities and persons falling under
as follows: Section 12 of the Income Tax Act. However, companies
operating under tax incentive legislation, self-employed
Asset Value Annual Assets Tax professionals such as lawyers, doctors and consultants
At least $50m $200,000 were required to pay the MBT.
At least $5m but less than $50m $150,000 It was introduced in 2013 in an attempt to bring within
At least $500,000 but less than $100,000 the tax base, companies and self-employed persons that
$5m were not paying income tax. It accomplished the desired
At least $50,000 but less than $25,000 effect and led to the deregistration of numerous dormant
$500,000 companies due to the added costs involved.
Less than $50,000 $5,000 The Minister indicated that like the Assets tax, he is removing
the MBT to reduce the costs to micro and small businesses;
The Minister indicated that he is removing the Assets
better align taxation with profitability thereby encouraging
Tax because it is distortionary. He further stated that the
greater risk-taking business activity, and encourage small
removal of the Assets Tax reduces the costs of micro and
business formation.
small businesses and better aligns taxation with profitability,
thereby encouraging greater risk-taking business activity The expected revenue loss from this tax change is
and encouraging small business formation. $1.093 billion.Global Tax Alert 3
Increase in GCT threshold • Registering of debentures
During the 2019/2020 Budget, the Minister announced an • Registering a mortgage – other than primary land
increase in the GCT threshold to $10 million from $3 million • Refinancing a mortgage whether the amount is the value
effective 1 April 2019. or higher
In 2009, the annual GCT threshold was increased to $3 million • Discharge of a mortgage
from $1 million so the 2019 increase to $10 million is once
• Other stamp duties involved in the granting and perfection
again at least three times the amount of the previous limit.
of other forms of securities
In 2009, the Bank of Jamaica’s average US$ exchange rate • Stamp duties payable on an increase in share capital;
was $88.28 for US$1 and for 2018 it was $129.72. Thus, rental/lease agreements and other transactions
the US$ equivalent of $3 million was US$33,982.78 in 2009
and US$23,126.73 in 2019. This means in US$ equivalent The Stamp Duty Act is complex and has many different rates
terms the GCT threshold in 2018 was approximately determined based on the type of document that is stamped.
US$10,000 less than it was in 2009 when the GCT threshold On 20 March 2019, The Minister further clarified that Ad
was increased, simply because of the devaluation of the Valorem Stamp Duty payable on any instrument pursuant
Jamaican dollar. The new GCT threshold of $10 million in to the Stamp Duty Act will be replaced with a flat Stamp
2019 is the equivalent of approximately US$77,000 so the Duty of $100 per document/parcel related to transactions
increase is approximately double what the GCT threshold valued below $500,000 and $5,000 per document related
was in US$ terms in 2009. This is a significant increase in to transactions valued at $500,000 or more. He also noted,
the GCT threshold and will result in more than 3,500 micro the ad valorem calculation for Betting and Gaming tickets
and small businesses no longer needing to register and file will remain unchanged.
GCT returns. This reduces the compliance burden for these The proposed rate change is expected to simplify and reduce
taxpayers. However, for taxpayers who are normally in receipt the stamp duties charged on documents that are used in
of GCT refunds, they would be better off registering if the GCT real estate transactions and for business loans. The Minister
they pay exceeds the GCT they collect in their businesses. indicated that this measure is expected to stimulate greater
Nevertheless, based on the Government estimates more competition and activity in, and access to credit markets;
taxpayers benefit than lose from this initiative. increase property development and real estate activities;
During his closing speech on 20 March 2019, the Minister and increase economic growth and job creation. However,
clarified that he would reinstate the provision in the GCT it currently takes many months and sometimes years to
Act which empowers the Commissioner to re-register an transfer real property in Jamaica due to the administration
applicant under voluntary registration regime should that of the tax, so the expectation of the Minister for this
be the preference of the business. The Commissioner will reduction to stimulate economic activity also depends on
retain the discretion to accept the re-registration for GCT. whether documents can be stamped quickly.
This measure is expected to cost the Government The potential revenue loss from this measure is
$731 million. $6.650 billion.
Reform of the Stamp Duty Act to remove ad Reduction in Transfer Tax on the transfer of real
valorem stamp duty rates property and financial instruments
The Minister announced on 20 March 2019 that effective The Minister announced the reduction of the Transfer
1 April 2019 the Government will abolish and replace with Tax payable on the transfer of real property and financial
a flat fee of $5,000 per document, the ad valorem stamp instruments from 5% to 2% effective 1 April 2019.
duties applicable to the processes of: It appears that this reduction in the Transfer Tax applies only
• Registering land to real property transfers and not to the shares of companies
• Issuing a bond that own real property but the legislation is needed to clarify
this issue. The Transfer Tax has been in existence for many
• Assignments
years and it was reduced to 6% from 7.5% effective 1 May4 Global Tax Alert
2008, by the then Minister of Finance, the Hon. Audley Shaw. the Transfer Tax threshold was done so that beneficiaries of
It was then reduced further to 4% effective 1 January 2010 estates will be able to utilize the equity in inherited property
by Minister Audley Shaw. However, effective 1 April 2013, to leverage economic opportunities.
the Transfer Tax was increased to 5% by the succeeding
The potential revenue loss is $0.287 billion. The effective
Minister of Finance, Dr. Peter Phillips. It is hoped that similar
date for implementation is 1 April 2019.
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. Implications
However, the long process of transferring property in Jamaica During its pre-election campaign, the Government
is also due to the valuation of the property, the various committed to a reform of the Jamaican tax system and
documents that need to be stamped and verified and also the promised to lower taxes and create a business-friendly tax
process of obtaining a mortgage. Therefore, the process also system. Therefore, these measures are trying to create
needs to be reformed to ensure documents are transferred a business-friendly system and are aimed at fulfilling an
faster through the system to speed up the time it takes to get election promise. The tax reductions total $14.032 billion
property transferred from one person to another in Jamaica. and are being funded by the reduction of the primary surplus
The potential revenue loss from this is $3.431 billion. from 7% to 6.5% and the additional revenues generated
by the over performance of tax revenues. With a major
Increase in the Transfer Tax (i.e., Estate Tax) reduction in the debt to GDP ratio from 147 to 96; a low
threshold applicable to the estate of deceased interest rate environment; relatively low unemployment
persons and low inflation, the economy should be growing faster
than the predicted 1.9% in 2019. It is therefore expected
The Minister proposed an increase in the transfer tax
that these measures will increase growth by stimulating
threshold to $10 million from the current $100,000 for
the business activities in Jamaica, particularly the micro,
the estate of deceased persons.
small and medium enterprises. However, in order for these
The current Transfer Tax applicable to estates of deceased tax reductions to have the desired effect of stimulating
persons is 1.5% of the value of the estate, including the economy and returning even more tax revenue to the
real property and shares, in excess of the threshold less Government, will depend on how businesses spend the
deductions and expenses incurred. On 27 April 2011, funds that these measures will free up. If the businesses in
former Minister of Finance, the Hon. Audley Shaw reduced Jamaica use the funds from these tax reductions in the local
the transfer tax on estates to 1.5% from 4% and reduced economy, expand their operations, hire more people and
the stamp duties to flat rates that reached a maximum of spend locally, these measures should help the economy to
$25,000. Minister Clarke announced that this increase in grow at a faster pace.
Endnote
1. Currency references in this Alert are to JM$ unless otherwise noted.Global Tax Alert 5 For additional information with respect to this Alert, please contact the following: Ernst & Young Services Limited, Kingston • Allison Peart allison.peart@jm.ey.com • Juliette Brown juliette.brown@jm.ey.com Ernst & Young LLP (United States), Caribbean Tax Desk, New York • La-Tanya Edwards la-tanya.n.edwards1@ey.com
EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2019 EYGM Limited. All Rights Reserved. EYG no. 001029-19Gbl 1508-1600216 NY ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com
You can also read
