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Jamaica Cancels Bank Tax Plans

by Mike Godfrey,, Washington

05 May 2014

Jamaica has withdrawn proposals to introduce a levy on deposit-taking institutions and encashments from securities dealers. It will instead seek to balance the 2014/2015 budget by closing local tax loopholes.

The Government also announced that it would scrap proposals for an increase to premium tax on life assurance companies and an increase to investment tax on insurance companies.

In their place, Jamaica proposes to introduce a temporary one percent asset tax on life insurance companies for one year. A new withholding tax will be introduced on insurance premiums paid to non-Jamaican insurers, and General Consumption Tax (GCT) rules will be amended to add foreign services.

The new withholding tax will be charged at a rate of 15 percent, and will apply to insurance premiums paid to non-resident insurers by Jamaican residents. Minister of Finance and Planning Peter Phillips said that the move is aimed at tackling tax avoidance whereby local firms are establishing offshore captive insurance entities.

"A common tax avoidance scheme employed by firms is to create a captive insurance company in an offshore jurisdiction. The captive charges the local operating company an insurance premium which is treated as an expense and is totally deductive from Jamaican corporation income tax."

He said that the withholding tax will negate any benefit of such an arrangement. Nonetheless, premiums paid to non-residents by registered Jamaican insurance companies will be exempt.

The GCT regime will be amended to apply to foreign services. Previously GCT applied to the importation of most foreign goods but most foreign services were outside its scope. This amendment will remove the tax incentive for using foreign service providers and equalize competition between local and foreign firms. Phillips said: "The absence of GCT on imported services encourages domestic consumers to substitute imported services that are not subject to GCT for domestically supplied services that are subject to GCT. It discourages the domestic production services, since domestic suppliers may not be able pass on the cost to consumers who are able to switch imported services. It discourages use of domestically produced services by some Jamaican businesses."

The proposed removal of the reduced tax rate on alcoholic beverages for the tourism industry will still proceed, but has been deferred for a month in response to a request from the Jamaica Hotel and Tourist Association.

TAGS: Finance | tax | investment | business | tax avoidance | banking | insurance | budget | Jamaica | captive insurance | withholding tax | services | Tax

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