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The Senate on Friday (Nov. 24) passed a Bill to amend the Income Tax Act, to allow for more effective regulation of long-term savings instruments, by, among other things, making it mandatory for prescribed persons who offer such instruments, to obtain the approval of the Minister prior to offering the products for sale.
In Piloting the Bill, Foreign Affairs and Foreign Trade Minister, Senator Anthony Hylton, said the legislation sought to remove the tax credit that was granted to corporate entities on the issue of bonus shares as well as drop the requirement that long term investment instruments, which are tax-free, be held in Jamaican dollars.
“Prescribed persons are to obtain the approval of the Finance Minister in respect of the tax free instruments relating to long term savings prior to the instruments being offered on the market,” he explained.
In the current Act, there is no requirement for the Minister to be informed of the status of the deposit or investment. Neither does it specify the currency of the long term savings.
“The Bill seeks to make it clear that the exemption would apply to long term investments, which are held in Jamaican dollars. The intention was never to offer the incentive for investment kept in foreign currency, which would have the potential to cause instability in the foreign exchange market,” Senator Hylton said.
Increases in the rate of premium tax on premium income from 1.5 per cent to three per cent, and in the case of non-regionalised insurance companies the premium tax is to be increased from two per cent to four per cent.
Meanwhile, the rate of tax on investment income in relation for assurance companies is to be raised from 7.5 per cent to 15 per cent while taxes which are now collected under the provisional Collection of Tax Act will become permanent.
Under Income Tax Act (1994), there was an income tax incentive of a 24 per cent grant in tax credit to companies on the issues of bonus shared.
This, Senator Hylton said, was intended to strengthen the financial base of companies given the relatively high cost of loan financing at the time. The aim was to assist companies with difficulty in obtaining working capital to finance themselves from profits rather than loans.
Senator Hylton said the tax incentive helped many local and foreign-owned companies to obtain leverage and list on the Jamaica Stock Exchange (JSE). He also said through the same incentive, the rate of income tax on dividend income was now reduced to zero.
The reduction was done on a phased basis over the period June 1, 2000 to April 1, 2002 as an incentive to encourage the movement of fixed income securities into the equity market.
Accordingly, the Bill seeks to remove the income tax credit towards the company tax liability on the issue of bonus shares while shifting the incentive to the shareholders by way of the exemption of income tax, payable on dividend income derived from companies listed on the JSE.
The Bill was passed in the House of Representatives without amendment after a protracted debate, which began in the House of Representatives in October 2005.