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IMF Structural Benchmark ... (Phillips predicts economic turnaround for Jamaica?) Options
Posted: Wednesday, September 25, 2013 4:42:18 PM

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Published: Wednesday | September 25, 2013 Comments 0

Jamaica will miss the deadline for tabling the Omnibus Tax Incentive bill, one of the structural benchmarks set out under the 48-month Extended Fund Facility with the International Monetary Fund (IMF).

The agreement calls for the bill, which when passed, will become the Omnibus Tax Incentives Act, to be tabled in Parliament by September 30.

At Parliament's final sitting for September yesterday, Finance and Planning Minister Dr Peter Phillips, in a statement to the House, said issues have arisen which will delay the timeline.

He said that following the first performance quarterly review in August, concerns were raised by local stakeholders and international partners about what was being proposed by the tax incentives working group.

The finance minister said discussions have been held with the IMF, and it was agreed that Jamaica would be given more time to work out and enact the required legislation.

IMF Resident Representative Dr Bert van Selm, in a statement yesterday, said "Fund staff is aware of the advanced stage of the preparation of the Omnibus Tax Incentives legislation, and will continue to assist the Jamaican authorities to help ensure that the programme objectives are achieved. In this context, the documentation regarding the first review of the programme was delivered to members of the IMF's Executive Board last week. The board is scheduled to meet on September 30, 2013 to discuss the review."

The new legislation will be far-reaching in that it is expected to replace all incentive laws, including inducements applicable to firms operating in the free zones, an issue which has concerned members of the business processing outsourcing industry, president of the Business Processing Industry Association of Jamaica, Yoni Epstein disclosed two months ago.

According to the IMF Country Report 13/26 on Jamaica, the Omnibus Tax Incentive Act, guided by technical assistance provided by the Inter-American Development Bank and in consultation with Fund staff, will be tabled in Parliament by September 2013.

There is no stipulation as to how soon the legislation should be promulgated, but debate on the bill and its passage into law is not expected to go beyond the end of December 2013.

That is because another structural benchmark set is that as at end December 2013, the Government has agreed that it will no longer consider new applications under existing tax incentive regimes. After December 31, 2013 new applicants will only be considered under the Omnibus regime, and will need to meet the associated new criteria.

The Omnibus Incentive Act will eliminate ministerial discretionary powers to grant or validate any tax relief, and put in place a transparent regime for limited tax incentives.


The IMF report stipulates that any new tax incentives, based on the new Act, will be implemented administratively, without any ministerial discretion in its validation, based on a contract signed regarding the specific project under the umbrella of the Omnibus Act. Furthermore, any incentives will be published promptly.

"No new or renewed waiver category or other tax incentive will be approved (unless required under existing legislation) and no amendment to existing legislation which could generate further tax expenditures will be undertaken until the passage and coming into effect of the new Omnibus Incentive Law," the IMF report said.

Posted: Sunday, October 6, 2013 8:07:13 AM

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Finance Minister, team in Washington for high-level meetings

Saturday, October 05, 2013 | 1:54 PM

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KINGSTON, Jamaica – Finance Minister Dr Peter Phillips is now in Washington DC, USA, where he is slated to participate in a series of meetings with his counterparts at the 2013 Commonwealth Finance Minister’s Meeting (CFMM) as well as meetings with the International Monetary Fund (IMF), the Inter-American Development Bank (IADB) and the World Bank (WB).

Phillips left the island Friday with members of his team – Governor of the Bank of Jamaica, Brian Wynter; the Director General of Planning Institute of Jamaica (PIOJ), Colin Bullock; the Financial Secretary, Devon Rowe; and the Technical Advisor to the minister, Ms Helen McIntosh – and is expected to return on October 13.

While in Washington, the Minister is expected to make representation to the executives directors of IMF, IADB and WB as a part of an advocacy grouping of delegates on behalf of Commonwealth Small States.

The Ministry of Finance and Planning in a release Saturday said the advocacy mission is to engage dialogue and raise awareness of financing and debt challenges facing small states and draw attention to options for addressing these challenges.

The release also said that before Phillips and his team returns to the island, he will attend the 2013 Annual Meeting of the Board of Governors of the IMF and WB, which is a forum of member institutions discussing current international monetary issues, as well as a series of bi-lateral meetings with Christine Lagarde, managing director of the IMF; Alberto Moreno, president of the IADB; and Sri Mulyani Indrawata, managing director of the World Bank.

The team is also expected to meet with senior officials in the US Department of State and the US Treasury Department as well as participate in the Group of Thirty International Banking Seminar, which will include representatives from Germany, Japan, the European Central Bank and the USA.

Read more: jamaicaobserver.com/news/Finance-Minister--team-in-Washington-for-high-level-meeting
Posted: Sunday, October 27, 2013 9:25:55 AM

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Golding says IMF deal a ‘fleeting illusion’

BY BALFORD HENRY Observer senior reporter balfordh@jamaicaobserver.com

Sunday, October 27, 2013

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FORMER Prime Minister Bruce Golding has said that while conditions imposed under the current Extended Fund Facility (EFF) agreement with the International Monetary Fund (IMF) are necessary, they will not promote investments and growth.

"Put another way, the conditions which the IMF imposes, left by themselves, will be impediments to investment and growth," Golding told an audience, including Jamaicans, at last Tuesday's CIN Lecture Series 2013 at the Schomburg Centre for Research in Black Culture in New York City.

"When a country's expenditure is so constricted that it can't effectively tackle crime and violence, cannot maintain an improved infrastructure, cannot develop a workforce with the necessary education and competencies, the conditions that need to exist for investment and job creation and growth to take place will remain, to borrow Emperor Haile Selassie's term, 'a fleeting illusion'," he said in a wide-ranging commentary on Jamaica's economic performance over the past 20 years.

Golding addressed missteps and missed opportunities over the period, as well as his assessment of what is necessary to overcome the challenges. He also took time out to explain that he was not criticising the Government or Finance Minister Peter Phillips for reaching an agreement with the Fund on the EFF, but didn't think it was enough to encourage growth.

He said that the "huge sigh of relief" which greeted the signing of the agreement in May, and which echoed across the international financial landscape, was exaggerated.

"I want to caution against the belief held by many, and articulated by the multilateral agencies. This argument goes like this: That if you stick to your guns and you are able to meet all the commitments that are stipulated under the IMF programme, we will finally, for the first time at last, be on the road to economic recovery and sustained growth," Golding stated.

He said that it is also being contended that the IMF policy of fiscal consolidation, which requires the cutting back of expenditure, while increasing revenue collection and reducing external debt, will ensure economic growth in the medium to long term.

Therefore, he said, the Government has committed to achieve and maintain a primary surplus of 7.5 per cent, starting immediately, to eliminate the fiscal deficit in two years, and to reduce the debt-to-GDP ratio from 140 per cent to 96 per cent in six years.

He said that the difficulty he has with that construct is that it has inherent contradictions that, while they cannot be eliminated, have to be countered if the programme is to succeed. However, the constraints imposed by these restrictions will impede investment and growth.

"I am not making this as a criticism of the Government, because the Government has very little room in which to wiggle, nor am I making this as a criticism of the IMF," Golding stated. However, he pointed out that, based on its mandate, the IMF is primarily concerned with financial stability.

"The IMF is primarily concerned with our ability to pay our external bills, and to repay our external debt, so that the smooth functioning of the global financial and trading system is not disturbed: That is its mandate, that is its mission," Golding pointed out.

"Economic growth, especially in the case of countries like Jamaica... is not the IMF's overriding priority. That it leaves to us to look about," he added.

"I am not saying that the commitments should not have been made, I just want you to understand the implications of the commitments. So, the conditions set out in the IMF agreement are necessary, and you will never hear me raising any criticism of Dr Peter Phillips or the Government for having entered into an agreement with those stated commitments. What I am trying to say is that they are necessary but are not sufficient," he said.

"While they speak to the conditions necessary to allow growth to take place, they do not embody the proactive steps that are required to make that growth occur," he concluded.

He said that the challenge now facing Jamaica is not just to pass the IMF tests, but to generate growth while pursuing a constricted, growth-passive fiscal policy.

"We have to go beyond the IMF agreement. We have to be not just IMF-compliant, we have to be IMF-plus," he said.

The annual debate was hosted by the CIN Network, which provides coverage of Caribbean culture for Caribbean-Americans living in the tri-state area of New York, New Jersey and Connecticut.

Read more: jamaicaobserver.com/news/Golding-says-IMF-deal-a--fleeting-illusion-_15329964#ixzz2iveGemHU
Posted: Tuesday, October 29, 2013 1:01:05 PM

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Phillips to roll out 'stimulative' tax plan today

Published: Tuesday | October 29, 2013 2 Comments

Finance Minister Dr Peter Phillips will today unveil to Parliament his corporate tax and business incentive plan, including the elimination of tariffs on most inputs used by industry, as well as allowing firms to set off against their income tax a chunk of their employee-related statutory deductions.

Phillips will also reveal a heavy front-loading of tax allowances on capital equipment, as part of a general acceleration of write-downs. For instance, firms will be able to claim their allowances on an industrial building over 25 years than the current 40 years, including 20 per cent of their allowance in the first year.

At the same time, the finance minister will tell legislators that his Dennis Morrison-chaired working group on tax reform is already considering issues relating to personal and consumption taxes, which will be ready during the next fiscal year.

"This first tranche of the tax reform programme is primarily about stimulating investment, job creation, and economic growth," said a source, who has knowledge of government's thinking and timelines on tax reform.

"This is the immediate and critical bit," the source said.


The administration is being forced to reform its corporate tax and incentive system as part of its economic support agreement with the International Monetary Fund (IMF), which balked at the discretion finance ministers previously enjoyed in granting tax waivers, and the distorting effect of a plethora of incentives.

Under the new regime, incentives will be codified, and their application non-discriminatory, without reference to ministerial authority.

Under the new arrangements, the income tax rate for regulated companies - such as utilities and those in the financial sector - remain at 33.33 per cent. Others will continue to pay 25 per cent.

However, unregulated companies will be able to claim their payroll taxes - the Education Tax and contributions of the National Housing Trust (NHT), the Human Employment Resources Trust (HEART), and the National Insurance Scheme (NIS) - as tax credits.

But there is one proviso: the claw-back must not be more than 30 per cent of a company's trading profit; that is minus income from non-trading activities, such as investments.

Employers pay an education tax of 3.5 per cent of payroll after other statutory deductions; NHT and HEART are at three per cent of gross wages; and NIS is capped around J$37,500 annually per employee.

The Gleaner source says that the tax on dividend, raised this year to 15 per cent, will be reduced to 10 per cent, and applicable to all shareholders, whether resident in Jamaica or not. Alternatively, the dividend tax will be the difference between the 10 per cent and any relief individuals might have, including viable double taxation agreements.

With regard to tariffs, except for certain prescribed goods - such as motor vehicles, alcohol, tobacco, firearms or where they are higher to protect specific domestic products - and if they are in conflict with Caricom's common external tariff, the Government proposes to cap duties at 20 per cent.

However, duties on capital goods as well as consumers' goods that are used "on a prescribed" manner for industry and specific enterprises will be zero.

"The Government will establish a non-discretionary statutory framework for what is called product input relief," said the Gleaner source.

"No minister will intervene to grant these reliefs," the source added. "They will be part of a statutory framework."

Posted: Wednesday, November 13, 2013 11:27:18 AM

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Changes in the Corporate Income Tax Rate - The Devil is in the details

Published: Wednesday | November 13, 2013 0 Comments


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.jm

Reduce 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.


"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)."


Posted: Wednesday, May 14, 2014 2:03:42 AM

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Is Jamaica's IMF programme overly austere?


Sunday, May 11, 2014 1 comment

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The IMF headquarters in Washington.

THE Ministry of Finance's very real achievement in meeting Jamaica's very challenging first year IMF targets has been somewhat obscured by the continuing issues with the tax package and energy. Ironically, the government's very success in meeting the first-year target has also obscured the key question of whether Jamaica should have had such stringent targets in the first place, particularly with respect to the primary surplus target of 7.5 per cent of GDP.

Tax revenues of $343.8 billion in fiscal year 2013/2014 fell just under $17 billion short of the $360.5 billion budgeted in the IMF's Extended Fund Facility (EFF), an increase of only $24 billion above tax revenues of $319.8 billion the year before, despite that year's much larger tax package. The tax shortfall was almost exactly in line with what was projected by a number of key private sector economists, who had forecast the likely shortfall at between 1 to 2 per cent of GDP based on their assessment of our very weak economy. By itself, tax revenues being below forecast is not tremendously surprising, as this has been the case for most of the past two decades, partly reflecting Jamaica's very weak growth. Indeed, the real surprise was that for most of the past

two decades, Jamaica nevertheless managed, most of the time, to achieve real growth in tax revenues after inflation, albeit with significant tax packages.

After the global financial crisis hit, tax revenues started to underperform inflation (fall in real terms) even with substantial tax packages, and this pattern has continued with the new administration. Although the current government has arguably been quite skilful until now in the political economy of taxation (meaning avoiding measures that might generate social unrest), the withdrawal tax on banks was a sign that they are starting to reach the limits of their creativity. In any event, the truth is this approach to taxation is also not new, as a number of ad hoc measures have been introduced over the past two decades to fill fiscal gaps. Any one of these measures, by themselves, will not kill the economy, but their combined effect will inevitably be to slow the economy and further blunt private sector incentives for growth.

Describing the major tax reform of the 1980s, which also occurred when Jamaica was under an IMF programme, their then Chairman Roy Collister noted that "Good tax reform requires a fiscal cushion". This critical insight has so far not been part of our recent tax reform process, as Jamaica's IMF programme has required continued revenue positive measures (as opposed to the revenue neutrality normally in the terms of reference of these tax reform processes), so that the end result should be regarded as mere revenue raising to meet a primary surplus target and not reforms designed to encourage growth.

Further, it is likely that the inappropriate overemphasis of some multilaterals on front loading the issue of incentives, through a combination of regime uncertainty and the likely effective "revocation" of contracts (voluntary in the same sense as the Jamaica Debt exchange and National Debt Exchange were for the banks) has already significantly reduced foreign direct investment in Jamaica in both 2013 and 2014, particularly in our tourism sector. This emphasis by the multilaterals was doubly surprising when one considers the massive size of Jamaica's current account deficit that needed financing, the sharp increase in net international reserves required under the programme, the fact that tourism was the only "export" of sufficient size and readiness able to make a real difference during the life of the programme, and the overall much less generous level of international financial resources of the new programme compared with the old.

This does not mean that some level of reform of incentives was inappropriate, but that the emphasis of the whole process of tax reform, and therefore the IMF programme overall, has so far been wrong from a development perspective. In structuring Jamaica's reform programme, the IMF has so far appeared to downgrade its main balance of payments financing mandate, in favour of one more similar to that of a debt collector. Review of the financing flows of the IMF's programme suggests that in designing the programme, their first priority seems to have been to work out how to get paid back for the first programme, rather than working out how to encourage Jamaica to attract foreign direct investment designed to develop new export industries. In short, the programme has severely restricted Jamaica's

domestic demand, whilst simultaneously placing a lack emphasis on Jamaica's only avenue for growth, namely exports, other than through the device of effectively encouraging devaluation. The fall in the current account deficit as a percentage of GDP, from 12.8 per cent for fiscal year 2012/2013, to an estimated 9.6 per cent of GDP in 2013/2014, has been driven almost entirely by a reduction in imports (exports have actually fallen), with relatively small gains in remittances

and tourism.

In conclusion, the whole issue of tax reform needs to return to what made the 1980's tax reform so successful - flatter, simpler well thought out (fully economically modelled) tax changes with appropriate local and foreign expertise. Once again, we have proven that last-minute, piecemeal tax policy changes, implemented with a lack of consultation with expert stakeholders, is not the way to go. The very accumulation of such tax measures over more than two decades is a significant disincentive to growth that should have been the area that was tackled first by the multilaterals, rather than measures that at least in the short to medium term, may have reduced foreign exchange earnings and investments.
Posted: Thursday, November 6, 2014 1:22:44 PM

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Phillips predicts economic turnaround for Jamaica

BY HAROLD G BAILEY Observer writer

Wednesday, November 05, 2014 116 Comments

NEW YORK, USA — Jamaica's Minister of Finance and Planning Dr Peter Phillips is expressing confidence that, over the next five years, "the country will see the most sustained period of economic growth and job creation since the 1960s."

This confidence, he said, is predicated on the fact that the last two years represent a period of the most sustained and comprehensive set of economic reforms that have been implemented in Jamaica's history.

Phillips, who was the keynote presenter at the 10th Caribbean International Network (CIN) lecture series here last Wednesday, argued that the economy "is already showing signs of improvements as a result of these reforms."

Addressing the topic 'Jamaica's Path To Prosperity', the finance minister repeatedly acknowledged that the reforms initiated under the current agreement with the International Monetary Fund (IMF), "were painful but necessary".

"Negotiating support for the programme from the IMF and other multilateral partners was a difficult task, and we should not forget the tremendous sacrifices made by critical stakeholders to meet prior conditions that were placed on us," he said.

"I am referring here to public sector workers, domestic creditors including pensioners, and taxpayers in general," he added.

He listed a number of legislative reforms which have been undertaken to strengthen the economy and attract more investors.

"The net effect of the combined economic, financial, legislative and administrative adjustments have been recognised by the global community,and has resulted in an improvement in Jamaica's ranking in the overall global competitive index as reported by the World Bank just today (last Wednesday)," Phillips said, noting that he expects more Jamaicans in the Diaspora to take advantage of the opportunities that the new economic environment
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