Phillip’s missed opportunity to shine

This publication made some suggestions in an article in January, on minimum wages and taxes that mirrors some of Dr. Nigel Clarke’s basket of gifts to the country ahead of the general elections due by 2020.

Dr. Peter Phillips – former Minister of Finance

We cannot take any credit for any of the goodies that Dr. Clarke announced. We can say is that Dr. Peter Phillips, leader of Jamaica’s opposition party, missed yet again another opportunity to demonstrate that he is the person to lead Jamaica.
Earlier this year, Phillips proposed to lower the GCT rate to help those less privileged in the Jamaican society but completely missed the mark with a proposal to hike the minimum wages substantially, to spur economic growth sharply.
In the January publication captioned, “Minimum wage hike will hurt Growth,” Phillips was urged to revisit the GCT reduction issue and back off the idea of a major hike in the minimum wage that would lead to many minimum income earners losing jobs. We note that Phillips in recent days again recommended a cut in the GCT even as one of the shadow cabinet members came out publicly against it shortly after it was initially announced.
In the January 2020 article we stated, “Between 2008 and 2017, the Jamaican government increased taxes sharply to close the fiscal deficit and thus reduced disposable income significantly, which led to lower consumption. The cuts also led to a decline in productivity as businesses had to absorb higher unit costs per output as sales contracted. With the economy growing for the past five years, tax intake has been much higher in each year from the 2017 fiscal year. It is time we return some of the taxes imposed during the years of austerity back to the people”.
“What is needed is not just an arbitrary cut in one tax or the other, but a proper assessment of those that are inhibiting production. Yes, GCT should probably be reduced to 15 percent, which could well result in increased inflows as the lower tax rate would lead to increased consumption and less leakage.

Nigel Clarke, Jamaica’s Minister of Finance

Corporate taxes need to be reformed. Businesses and their owners should pay one rate based on profits. The tax rate on companies should be around 20-25 percent with no taxes on dividends. As such, shareholders would pay taxes on profits once not twice, with the latter being the case. All asset taxes that drive up borrowing costs must be removed and thereby reduce the distortion in the system. Payroll tax credits must be eliminated; they are a wasteful use of the country’s taxes. The excessive tax on financial institutions must also be eliminated as they are taxes on the end users, not the financial institutions, and they drive up the cost of production.”
“On close examination, there are several other categories of taxes that should be removed as they bring in a relatively small portion of the country tax revenues, leaving around ten in all. This would reduce the government’s operating cost for tax collection. Small businesses are burdened with all sorts of tax compliance issues and need relief from them so that they can focus on running their businesses and earning a decent income for their owners.”
“The above are some of the tax proposals that Phillips and his team should be addressing as reforming them could push economic growth.” He missed the opportunity to drive the agenda on tax reform, an important area of the economy that could stimulate growth and make lives easier for all.”
Phillips left the way completely clear for Clarke to strike some important blows and push the gap between the two parties further apart. This publication notes that a number of the above proposals made were addressed in Minister Dr. Nigel Clarke’s opening budget presentation on Tuesday. Importantly, his comments about the Asset tax not being a cost on the banks and is an inhibiting factor for faster economic growth is precisely what this publication has been saying for some time.
The minister continued on a sound footing in slowly reforming the system. We are confident that he will continue the process of reform to remove most of the other distortion in the system as tax revenues increase. The minister’s SME tax credit of $350,000 is welcomed, but that will only benefit businesses with profit. What is need is a bolder move to help ease pressure upfront. In this regard, these small businesses should be freed from some of the employer’s portion of payroll taxes like NHT, education taxes and HEART, and it is not too late to implement these.

Nigel Clarke future JLP leader

There is hardly anything that attracts great attention than doling out gifts, when combined with charisma, makes for a potent mix. That is precisely what Nigel Clarke did on Tuesday as he quietly set himself up as a strong candidate as a future leader of the Jamaica Labour Party.

Nigel Clarke, Jamaica’s Minister of Finance

Tuesday’s presentation was a vast improvement over his 2019 budget, one in terms of delivery. His delivery shows that he has the talent to more people on the campaign trail a considerable advantage for a politician to have. While Clarke will have competition from the likes of popular minister Tufton, minister Montique, he could also face competition from Kamina Johnson-Smith, one that few are looking at but her presentation at the last JLP conference suggests that she has the delivery skills to move people.
Whatever the position, Clarke holds a big trump card over the rest. He is bright, young, articulate and most importantly, controls the country’s purse strings. With an improving economy, he will be handing out goodies annually to voters for quite some time to come. That will cement him as the greatest Minister of Finance the country would have had as the country and people benefit from the improving tax collection and the significant cost savings of the reduction in interest cost from lower interest rates and lower debt.

GCT drops to 15% in April

Nigel Clarke, Jamaica’s Minister of Finance

The Minister of Finance announced a cut in GCT by 1.5 percentage points to 15 percent, effective April and will results in a loss in revenues of $14 billion as he announced a raft of measures that will result in tax reduction and subsidies for some entities and low-income earners.
The across the board reduction in the GCT tax rate is the first such reduction since the tax was introduced in the early 1990s. The adjustment follows calls by Leader of the PNP’s Peter Phillips for a 2.5 cent point reduction in the tax rate. The government is reducing the asset tax on financial institutions by 50 percent, takes effect in the next fiscal year. The removal will reduce the added cost of providing services by financial institutions to the public and amounts to $3.2 billion in lost revenues.
The SME sector will benefit from a new SME tax credit of $350,000 for 2020 onwards and will cost an estimated $1 billion. They are reducing fees paid for import licenses by Agricultural boards by 50 percent effective April. Reduction in fees paid to Trade Board for import license by 50 percent.

More taxes less cost keep GOJ in black

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Nigel Clarke, Jamaica’s Minister of Finance

Data put out by Jamaica’s Ministry of Finance shows the government’s operating at a surplus with increased taxes and major cost reductions in two critical areas.
Information for the June quarter shows a surplus of $6.5 billion for the quarter against a planned deficit of a mere $58 million. Helping in achieving the positive outturn was near $4 billion in lower interest payments and the increased taxes and reduced expenditure of $3.6 billion on other areas of government operations. Capital expenditure saw $1.5 billion more spent than budget, while grants pulled in $3 billion less than planned.
Tax revenues brought in $128.7 billion, up 3.3 percent over budget and revenues from PAYE grew just one percent above budget, at $14.4 billion. Motor Vehicle license rose 7.7 percent above budget to reach $1 billion. GCT on local goods and services slipped 2.3 percent below budget to end at $24 billion but is up strongly on the total take for the 2018 first quarter. GCT on imports of $20.4 billion rose 2.7 percent above budget. Travel tax climbed 10.3 percent to $5 billion while betting, gaming and lottery taxes pulled in 28.6 percent more than in 2018 with $1.26 billion coming in for the June 2019 period.
The improvement is a continuation of healthy tax inflows for a number of years and is a sign of continued economic growth for the country.

Jamaican Government cuts transfer tax to 2%

Effective April will government will reduce transfer tax from 5 percent to 2 percent, the Minister of Finance Dr. Nigel Clarke told Parliament, in his maiden budget presentation.
The minimum business tax for all businesses and asset taxes for non-financial businesses will be abolished effective April. The taxes were a nuisance and discriminatory in nature, lacking equity as they did not equate to the size of all businesses in the country, resulting in smaller businesses bearing a larger burden than larger ones.
The threshold for filing GCT will be moved from $3 million to $10 million, a level below which no GCT return will have to be filed. The minister stated that the change will result in 3,000 businesses not having to file GCT returns.
Stamp duties relating to certain transactions will be removed and substituted by a simple fee of $5,000, equal to the cost of providing the service. They will also abolish ad valorem stamp duties and replace them with a flat fee of $5,000.

Anya Levy of ReMax Elite Realtors

The amount on which estate tax is payable, will move from $1 million to $10 million effective April. The Minister stated that the measures will result in $14 billion in taxes being given up, by the government.
The minister also stated that the primary surplus will be lowered from 7 percent of GDP to 6.5 percent and was arrived at in discussion with an IMF staff.
IC Insider .com spoke to two noted individuals within the real estate market who are positively impacted by the news on stamp duty and transfer tax reduction. Deborah Cumming of Century 21 said “that is fantastic news, it will make a tremendous difference to the industry and the economy.” While Anya Levy associate broker at ReMax Elite. “that is fantastic, it will give incentive for sellers to move their properties and increase volume. It’s the right move and government will make up the taxes given up by increased volumes.”

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