- Minister of Finance and Planning, Dr. the Hon. Peter Phillips, on Wednesday, April 29, announced two new revenue measures to raise $2.3 billion.
- The Government has removed the introduction of a levy on deposit-taking institutions and encashments from securities dealers.
- The new measures include the introduction of a withholding tax on insurance premiums paid to non residents by Jamaican residents and the modification of the GCT Act.
Minister of Finance and Planning, Dr. the Hon. Peter Phillips, on Wednesday, April 29, announced two new revenue measures to raise $2.3 billion.
The Government has removed the introduction of a levy on deposit-taking institutions and encashments from securities dealers, which was previously announced by Dr. Phillips on April 17.
The new measures include the introduction of a withholding tax on insurance premiums paid to non residents by Jamaican residents and the modification of the General Consumption Tax (GCT) Act to improve the rules relating to imported services.
In this regard, there will be an introduction of a 15 per cent withholding tax on all insurance premiums paid by Jamaican residents to non residents, the Minister said, as he closed the 2014/15 budget debate in the House of Representatives.
Dr. Phillips noted however, that premiums paid to non residents by registered Jamaican insurance companies will be exempt.
“The objective of this measure is to assist us in improving compliance, whilst we strive to protect the most vulnerable,” the Finance Minister stated.
He added that as part of their tax management strategy, large Jamaican companies have been increasingly purchasing insurance from overseas insurance companies.
“A common tax avoidance scheme employed by these firms is to create a captive insurance company in an offshore jurisdiction. The captive charges the local operating company an insurance premium which is treated as an expense and is totally deductive from Jamaican corporation income tax,” Dr. Phillips stated.
He explained further that the imposition of the 15 per cent tax on such payments would immediately mitigate the benefits these captive arrangements enjoy and increase tax compliance.
“It would also bring this in line with interest payments made by resident Jamaican companies, other than banks to overseas lenders. The proposal to exempt local registered insurance companies from this tax would not penalize the payment of re-insurance premiums,” Dr. Phillips said.
With regards to the modification to the GCT Act, Dr. Phillips explained that unlike imported goods, most services imported into Jamaica are not subject to GCT.
He noted that registered tax payers who provide services are at a disadvantage to non- resident service providers, since the Jamaican service providers must charge GCT, whereas non -resident service providers are not generally required to do so.
“The absence of GCT on imported services encourages domestic consumers to substitute imported services that are not subject to GCT for domestically supplied services that are subject to GCT. It discourages the domestic production services, since domestic suppliers may not be able pass on the cost to consumers who are able to switch imported services. It discourages use of domestically produced services by some Jamaican businesses,” Dr. Phillips explained.
He added that the move to remedy the imposition of GCT on imported services is designed to stem future revenue losses from this source, as purchasing services supplied offshore is becoming increasingly common.
The Minister noted further that the modification of the GCT Act will stimulate the development of a domestic service sector in the overall growth strategy.
Meanwhile, Dr. Phillips announced that the increase in premium tax for regionalized and non regionalized life assurance companies to 5.5 per cent and the increase in investment tax for insurance companies to 20 per cent have both been withdrawn.
Instead, he said there will be an increase in the rate that applies to the Asset tax by an additional 75 basis points to one per cent for life insurance companies only.
“This measure is intended to be temporary and will last for one year. Potential revenue intake will be approximately $900 million,” Dr. Phillips said.
In relation to the Alcohol regime to unify the Special Consumption Tax on all alcohol beverages, the Government has deferred the implementation of this measure for one month for the tourism industry.
Dr. Phillips said this was in response to a request from the Jamaica Hotel and Tourist Association for additional time to discuss the implementation of the measure by the tourist industry. “This will result in a revenue loss of approximately $36 million,” he stated.
The Minister also noted that with regards to the modification of the duty regime for specified motor vehicles, Pick-ups will be included under the new regime. However, hybrid vehicles which were not included, will not attract a special consumption tax.
Last week, Dr. Phillips said the Government was anticipating to gain $250 million following the modification of the duty regime for specified motor vehicles.