Changes in the Corporate Income Tax Rate - The Devil is in the details
Published: Wednesday | November 13, 2013 0 Comments
Everald Dewar, GUEST COLUMNIST
Everald Dewar, GUEST COLUMNIST
Everald Dewar, GUEST COLUMNIST
The clock is ticking. The March 15, 2014 deadline for filing final income tax returns for 2013 is fast approaching.
However, given the recent amendment to the Income Tax Act, accountants and tax practitioners are at odds as to the rate of tax applicable on 'large unregulated' companies for 2013.
According to the amendment to the Income Tax Act, effective January 1, 2013 income tax rates payable by companies are: regulated companies 33.33 per cent and unregulated companies 25 per cent. However, effective April 1, 2013, large unregulated companies will pay tax at 30 per cent.
Companies pay income tax not on their sales income or accounting profits, but on chargeable or 'taxable income' which is arrived at by making various adjustments to the accounting profits.
The amendment to the Income Tax Act was made to section 30, which provides in part that: 'large unregulated company' means any company that is not a regulated company which has gross [annual] income of not less than $500,000,000".
Section 30 deals with the rate of tax that is to be applied on the company's 'taxable income'. What creates the problem is the thinking that the term 'gross [annual] income' gives an impression of gross annual sales or turnover.
It is my opinion, however, that 'gross annual income' is a term of art which bears its recognised meaning of 'taxable income' as used in the section and has no broader accounting or commercial meaning. Let me explain.
The paramount question when interpreting a particular statutory provision is to look at what Parliament intended and its application. The relevant questions are: (1) the question of law - what is the meaning of the term gross annual income as used in the section?; and (2) using a purposive construction, was the word or phrase intended by Parliament to impose income tax on a company as a function of its sales volume as opposed to its taxable income?
In other words, is there a reason for giving the term gross annual income any other meaning other than its legal meaning of taxable income as was intended to be conveyed in the section?
Purposive Approach
The established principle is that when searching for the meaning of any particular statute, the courts will have regard to the underlying purpose that the legal language is seeking to achieve. This is the so-called purposive approach' to the interpretation of the law, which is not confined to taxation statutes.
The term gross annual income which most accountants and tax practitioners find troubling has nothing vague or imprecise about it as the section deals with taxable income; hence it is the size of the taxable income which determines if a company is a large unregulated company, and not the size of its sales or turnover.
It should be appreciated that Section 30 speaks to the tax rates applicable to the company's taxable income, therefore, the term gross annual income added in the section does not automatically change the entire meaning or influence what the tax rate will be applied to — that is, the taxable income, as used in the entire section and the Income Tax Act.
What is being debated is whether the term gross annual income refers to a purely legal concept or has some broader commercial or accounting meaning, which is itself referring to a concept that is wider than its traditional juristic categorisation of taxable income as used in the section itself.
However, if Parliament had intended that the term were to be used to convey a broader accounting or commercial meaning it would have said so and placed it in another section.
I bring to readers' attention that the recently tabled omnibus tax incentive bill proposes that effective January 1, 2014, the 30 per cent rate of tax on 'unregulated companies be removed and replaced with 25 per cent.
Everald Dewar is Senior Taxation Manager at BDO Chartered Accountants in Kingston. Email:
everald.dewar@bdo.com.jmReduce bureaucracy in granting construction permits - IMF
Published: Wednesday | November 13, 2013 2 Comments
The Simón Bolìvar Cultural Centre under construction in downtown Kingston. The IMF wants the Government to reduce bureaucracy by granting construction permits faster. - File
The Simón Bolìvar Cultural Centre under construction in downtown Kingston. The IMF wants the Government to reduce bureaucracy by granting construction permits faster. - File
The government is yet to indicate when it will implement measures to spur growth in the construction sector by reducing bureaucracy in the granting of permits which stakeholders said has been a barrier to them for the last 10 years.
According to the October 2013 International Monetary Fund (IMF) report on Jamaica, following the first review under the Extended Fund Facility, the Government emphasised that achieving broad-based growth remained a central pillar of the four-year loan programme.
However, the IMF staff noted that the business climate remained poor and forthcoming support by the World Bank would be important in guiding and implementing the growth strategy.
"Staff stressed, in particular, the importance of speeding up structural reforms that reduce bureaucracy, for example, in granting construction permits," the report said.
In early September, and again last week when he released the sixth communiqué of the Economic Programme Oversight Committee, co-chairman Richard Byles urged the Government to implement radical reform to spur growth in the construction sector.
PROCESS OVERHAUL
"We need an overhaul of the process for construction permits," Byles said as he addressed stakeholders at an economic reform conference in downtown Kingston. Last week, he told Wednesday Business that "we have been calling for this for a long time," but "up to now, we haven't seen any progress being made."
At the September forum, Finance and Planning Minister Dr Peter Phillips said there was a commitment on the part of the Cabinet to find a way to ensure that the procedures in the various parish councils were standardised to simplify the process.
"There are billions of dollars worth of investments that are being held up in the government apparatus somewhere which, unlocked, would add a per cent or two to our growth rate, and we just need to do that," Dr Phillips said.
The minister added then that he anticipated that within six to eight weeks Cabinet would be able to say something more definitive on that issue.
However, to date, the Government has not publicly said what measures would be put in place to speed up the issuance of construction permits.
Also back in September, Christopher Zacca, president of the Private Sector Organisation of Jamaica, said "what we should do is sit down as public/private sector to unlock the billions and billions of dollars that have been tied up in a totally inadequate and inefficient process to approve construction projects."
He added: "It is one of the biggest problems facing us right now."
Ironically, the IMF report said that preliminary data indicate a somewhat larger economic contraction during 2012/13 than estimated in the most recent staff report, the decline attributed to weaker-than programmed performance in agriculture, mining and the construction sectors.
As part of the growth-inducing structural reforms under the IMF programme, the Government said it would improve the business climate by, among other things, streamlining the process for construction permits, "including standardising and harmonising application forms and application fees across local governments (parish councils)."
business@gleanerjm.com