Everald Dewar | The $1.5m threshold bonanza and tax nightmares
Published:Tuesday | March 15, 2016 | 12:00 AM
I have had so many questions thrown at me about the $1.5 million threshold that was announced leading up to the February 25 general election, that am starting to feel I was its author.
The public, mainly doubtful and perplexed, has an unaccountable fascination with this 'bonanza' and are not slow in coming up with all kinds of theories, including on social media.
One such story running is that unemployed persons are to register [somewhere] in order to collect $18,000 monthly.
There are real horror stories out there and the policymakers must move quickly to educate the public before this all turns into a 'tax nightmare'.
In the meantime, the March 15 due date for filing and making payments on income tax returns for 2015 and estimated tax returns for 2016 has passed. This time is significant on the business calendar and, for some, it is troubling.
But speaking about nightmares and trouble, before social media, two of the best sources of gossip, commentary and ideas, whether valid or not, were the local bar and the hairdressing salon.
I am indebted to the proprietor of a hairdressing salon for the particulars that prompted this article.
She explained that a client's husband, a businessman who we shall call Tim, was served a summons to attend court in April 2016. An audit was done, but no information given as to the outcome. The first information on the matter was a registered letter received in December 2015 and bore contents dated October 2015. The letter was mailed after the 14 days given for the additional tax to be paid had passed.
An objection was made but there were no further contact save the summons received advising Tim that he must attend court to answer to the charge of owing millions in outstanding taxes.
How worse can things get, as Tim has lost two very important contracts and is having cash flow problems? He is now unable to pay his debts, including his taxes, as they become due. To Tim, the tax audit was the air campaign in the war against him; the ground assault will now began in the courts.
He likened the experience to a storm culminating in one matchless effort that seemed likely to tear his business to pieces, burn it up, drown it to the rooftop, blow it away, and destroy the lives of every employee in it, all at one and the same time.
The trusty hairdresser referred Tim to me for help. This is the kind of job I hate, where the battle has already been lost and someone asks you to take up arms.
Although Tim's case may not be considered the norm, it is not an isolated case. But in the middle of all that, I told him there is hope. Before we get to that, however, take note that tax liability of this nature is always spiced up with penalty, interest and surcharges that triple the debt, especially in the case of GCT.
The late Ethlyn Norton-Coke described GCT as a 'gravalicious tax', and this relates also to its ravenous reach with penalties and interest. Unlike income tax, GCT penalties start not from the date the error was unearthed, but from in the past where the error originates.
The law gives the Minister of Finance the power to waive these punitive imposts but because of IMF commitments this waiver is reduced to $10 million per month and applies only where there are dire circumstances and where there is no other legislation to deal with it. Such existing legislations include the Tax Arrears Write-off Act, which automatically writes off liabilities outstanding up to a certain period. Any further reprieve would have to come from Tax Administration Jamaica (TAJ).
Tim's good news is that a tax amnesty was promised during the recent election campaign by the party that now forms the government. A similar tax amnesty was granted back in April 2008 with further concessions in October 2008.
I told Tim that the face of the TAJ is changing as it seeks to be less remote and austere. Taxpayers are now termed 'valued customers' and TAJ presents itself as 'your friendly revenue service'.
I suggested to Tim that we will go to court with a smile and thoughts of: 'truth, rights, justice and tax amnesty! I hope this will work.
Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston.