Phillips gives in on withdrawal tax - Finance minister announces tax on imported services, other measures to replace controversial proposal
Published:Thursday | May 1, 2014 | 12:00 AM
Daraine Luton, Senior Staff Reporter
Facing howls of protests about the imposition of a bank withdrawal tax, Finance Minister Dr Peter Phillips yesterday revealed that the Government has bowed to the pressure, and is to replace the proposed levy with new revenue measures including the imposition of general consumption tax (GCT) on all imported services.
The revised tax measures will see a withholding tax of 15 per cent on all insurance premiums paid by Jamaican residents to non-residents.
The Government will also impose GCT on imported services in a move to collect revenue and stimulate the development of the local services sector and stimulate economic growth.
Phillips said bankers and investors must recognise "that one sector cannot succeed on its own" and cautioned the parliamentary opposition that "now is not the time for idle threats".
Opposition Leader Andrew Holness had urged the Government to roll back the proposed bank tax or face the consequences, as opposition MPs threatened street protests.
The new revenue measures will yield $2.3 billion. Phillips said the 15 per cent withholding tax on insurance premiums paid by Jamaican residents to non-residents would enhance tax compliance as well as be in line with interest payments made by resident Jamaican companies, other than banks, to overseas lenders.
The minister said the exemption of locally registered insurance companies would not penalise the payment of re-insurance premiums.
Phillips told Parliament that as part of their tax management strategy, large Jamaican companies have been increasingly purchasing insurance from overseas insurance companies. He said the practice represents "a common tax avoidance scheme employed by these firms to create a captive insurance company in an offshore jurisdiction".
Loopholes to be plugged
Meanwhile, Phillips announced that in plugging loopholes in the GCT net, a tax is to be placed on services imported to Jamaica. He said that unlike imported goods, most services which are imported do not attract GCT.
"Registered taxpayers who provide services are at a disadvantage to non-resident service providers since the Jamaican service provider must charge GCT, whereas non-resident service providers are not generally required to do so," the minister said.
He argued that the imposition of GCT on imported services was designed to stem future revenue loss, noting that purchasing services supplied offshore is becoming increasingly common.
Among other amendments made to the tax measures which were announced two weeks ago is a deferral, by one month, of the date for the hotel sector to pay an increased rate for alcoholic beverages.
The special consumption tax on hybrid vehicles has also been withdrawn as Phillips said the Government wants "to encourage energy conservation and the use of new automobile technologies".
Insurance tax hike withdrawn
The Government has also withdrawn an increase in the premium tax for regionalised and non-regionalised life assurance companies to 5.5 per cent, as well as an increase in investment tax for insurance companies to 20 per cent. In its place, there will be an increase in the rate that applies to the asset tax by an additional 75 basis points to one per cent for life insurance companies.
"This measure is intended to be temporary and will last for one year," the minister said, while noting that the measure will yield $900 million.
The House of Representatives yesterday passed the Appropriations Act, which paves the way for the Government to spend $540.1 billion this fiscal year.
Phillips said the state was expecting to raise $421.2 billion to go towards budget financing. He said loans of $110.9 million as well as the utilisation of $1.4 billon, which represents balances in the banking system, will be added to the $6.7 billion in new revenue measures to finance the Budget.