Levy bashes tax plan as misguided
Published:Wednesday | March 7, 2012 | 12:00 AM
Steven Jackson, Business Writer
The Private Sector Working Group (PSWG) proposal to reduce corporate income tax will fail to increase tax compliance, says deputy general manager of the Jamaica Stock Exchange (JSE), Robin Levy.
Most tax dodgers evade tax regardless of the rate, Levy said, noting that the halving of the corporate tax rate would amount to a tax break for existing compliant corporations.
"The way to get companies tax compliant is not by reducing the tax rate but by getting companies on the exchange," Levy told Wednesday Business, following this week's release of 145 measures by the PSWG, which says its proposal would deliver J$7.3 billion in new taxes to Government.
PSWG recommends cutting the corporate tax rate from 33 per cent to 15 per cent. The reduction would bring all companies closer in line with the rate to be paid by junior companies in years 6-10 of their listing on the JSE.
The first five offers a full income tax waiver.
Levy views the stock market as the main avenue to induce private and family companies to increase transparency, tax compliance and ownership.
"They are saying that you don't have to do these things to get tax breaks," he said.
JSE and the Jamaica Hotel and Tourist Association have been fighting plans to eliminate waivers, which would kill the 10-year waivers open to businesses aligned to both groups.
Only some five per cent of the 60,000 registered companies pay tax, according to the PSWG which consists of the Private Sector Organisation of Jamaica (PSOJ), Jamaica Manufacturers' Association, Jamaica Exporters' Association, Jamaica Chamber of Commerce, and the Jamaica Bankers' Association, among others.
The PSWG's measures aim to catch tax dodgers while placing the island on a path to equity and growth. The PSWG hopes some of these proposals will be accepted by the Government for implementation at the start of the new fiscal year on April 1.
"The only tax incentive that Government can give to encourage compliance is in the junior market," Levy said.
In December, the JSE objected to the group's apparent draft plan to remove the junior market tax break. However, the PSWG said on February 28 that they would keep the tax break in the first five years but remove the 50 per cent partial tax rate for the second five-year period, currently at 16.7 per cent.
Removing the second five-year waiver would result in a lower tax rate for junior companies following the proposed implementation of the PSWG's measure to slash corporate tax to 15 per cent.
"So they will actually be better off under our proposals," said the PSWG's fact sheet distributed to stakeholders.
"The purpose of the junior market is for companies to be able to raise capital, and the five-year tax concession ought to be viewed as a secondary feature for listing and not the primary driver, as this would imply that the junior market is merely a means of tax avoidance."
Levy said perceptions of market abuse by junior listed companies have little merit. He added that government policy can be refined to address perceived abuses.
"The way to combat the abuse is not to close the entire market but by deliberate policy to address the issue," he said.
The junior market allows medium-sized companies to raise a maximum J$500 million of equity capital. Launched in April 2009, it received its first listing in October of that year - Access Financial Limited. Currently, some 12 stocks are listed on that market, with another 12 in various stages of entry, Levy said.
The PSWG document will be presented to Parliamentary Tax Reform Committee later this month. The Green Paper on tax reform, which was tabled in May 2011, aims to simplify the tax structure while expanding the tax base. The consultations will inform the drafting of a White Policy Paper on taxes, which will form the basis of new tax laws.
The Paying Taxes 2012 report published in November by global accounting firm Pricewaterhouse-Coopers, in collaboration with the World Bank and International Finance Corporation, identified Jamaica as the 11th worst in terms of the ease of paying taxes in the world. The ranking was based primarily on the number of payments required to be made by companies and individuals, the number of hours spent to pay, as well as total tax rates.