- The Bill seeks to provide a framework for the new Omnibus incentive regime.
- The tabling of the Bills meets an important structural benchmark agreed with the IMF.
- Dr. Phillips explained that the Jamaican economy has not been well served by the existing regime of sector-based incentives.
The Fiscal Incentives (Miscellaneous Provisions) Act and the Income Tax Relief (Large Scale Projects and Pioneer Industries) Act 2013 were tabled in the House of Representatives, on October 29.
Tabled by the Minister of Finance and Planning, Dr. Peter Phillips, the Bill seeks to provide a framework for the new Omnibus incentive regime.
The tabling of the Bills meets an important structural benchmark agreed with the International Monetary Fund, that involved a deadline for the preparation and tabling of legislation providing for a consolidated generalized incentives regime.
In a statement to the Lower House, Dr. Phillips explained that the Jamaican economy has not been well served by the existing regime of sector-based incentives.
He noted that the consensus has been that such incentives may have been partly responsible for Jamaica’s lacklustre track record of growth by encouraging misallocation of limited economic resources.
The Minister said the new incentive regime focuses on the granting of incentives to the primary inputs to production.
“It incentivises investment through streamlined and modernized capital allowances that more closely accord with the useful lives of assets, and it incentivises the employment of labour through the instrument of Employment Tax Credits,” Dr. Phillips explained.
The Minister noted that one of the most often-cited criticisms of the current incentives regime is the extent to which the application and approval processes represented hurdles to business persons.
These hurdles, he said, were most likely to be overcome by those with “access” to the government functionaries responsible for processing or approval of applications.
“Currently, Jamaica’s compliance rates across various tax types do not compare favorably with peer countries. Access to fiscal incentives generally ought to apply only to compliant taxpayers. In that regard, the system has been designed to reward only those who are compliant, and who pay their fair share of taxes,” the Minister said.
Explaining both Bills, Dr. Phillips said that the Fiscal Incentives (Miscellaneous Provisions) Act 2013 sets out the reforms to be carried out to corporate tax, including the introduction of an Employment Tax Credit (ETC), changes to the capital allowance regime, and revision of provisions governing the utilisation of tax losses.
He added that the Bill also deals with transitional arrangements relating to the change from the old to the new incentives regime.
In terms of the Income Tax Relief Act (Large-scale Projects and Pioneer Industries) Act, it sets out provision for the designation of large scale projects and pioneer industries that would qualify for tax credit under the Income Tax Act.
Other elements of the framework for the new Omnibus Incentive Regime will be covered under other legislation, namely the (Customs Tariff (Revision)(Amendment) Resolution 2013 and Stamp Duty (Amendments of Schedule) Order 2013.
“These replace the myriad pieces of legislation put in place since the 1940s and that underpin a system which lacks administrative coherence and generates significant tax expenditures,” Dr. Phillips said.
He added that the new tax incentives regime is only one piece, albeit an essential component, of the broader tax reform exercise being undertaken, and which is guided by the principle of ensuring growth with equity, transparency and simplicity.
“By providing a competitive general tax regime that incentivises productive activities across all sectors, it has the potential to stimulate investment and improve the overall business environment. In short, the overriding objective of this element of the reform is to stimulate business activity and put people to work,” Dr. Phillips said.
He further commented that the modern framework that will govern the new Omnibus regime will bring benefits in terms of more efficient allocation of resources.
“Rather than a system with a few tax-preferred sectors that enjoy negotiated concessions, while the non-preferred sectors are subject to higher effective tax rates, the new generalised regime will allow for uniformly reduced rates for all tax-compliant corporate entities and individuals involved in productive activities. This should also serve to enhance the competitiveness of the overall economy,” the Finance Minister said.