Dr Phillips’s Achilles’ heel: that retroactive taxation

This Administration has shown flashes of the kind of thinking that countries need to achieve economic growth.

On previous occasions we have, in this space, pointed to some of the policies implemented and have extended due commendations to Mrs Portia Simpson Miller’s team.

Just two months ago, we commented on the value of the Fiscal Incentives Act, which gives tourism entities tax benefits for reinvestment and refurbishing.

We also highlighted the wisdom ofthe policy implemented by Tourism Minister Dr Wykeham McNeill that deals with the approval of incentives without the applications having to go to the minister.

Both policies, we suggested, are forward thinking and need to be used as templates for other sectors.
In more recent weeks, we have had reason to commend the finance minister, Dr Peter Phillips, on his stewardship, which has resulted in the World Bank, in its most recent Doing Business Report, listing Jamaica as one of the 10 most improved economies globally. In addition, the administration can also boast of slashing public debt by 20 percentage points.

Given that kind of performance, we are unable to fathom the thinking behind the intention to retroactively implement a transfer-pricing regime.

As was reported in this week’s Sunday Observer, the Private Sector Organisation of Jamaica (PSOJ) has raised concerns about the Government’s move to make amendments to the Income Tax Act retroactive to April 1 this year.

The PSOJ has made it clear that it supports the need for the amendments. However, the organisation believes, and rightly so, that transfer-pricing rules must be clearly defined to not only allow for smooth implementation, but also to encourage business investment and economic growth.

The PSOJ has also suggested that the transfer-pricing amendment should not be implemented until the advance transfer-pricing agreement framework is established, including the details and the necessary staff and training which, the organisation argues, are essential for the proper understanding of each business sector and related markets.

Both issues, we believe, are worthy of examination, because, as the PSOJ has pointed out, retroactive taxation ultimately results in litigation which can prove costly and disruptive to business.

Add to that the fact that it does not encourage trust in governments – which is essential to the creation of a healthy climate for investment – and you can see the risk that the Administration is taking with the country’s future.

The Sunday Observer story highlighted the negative repercussions in India when the finance minister retroactively applied a Minimum Alternative Tax on companies operating in that country.

The Indian experience should serve as enough caution for the Jamaican Government, which has so far not denied that it will go ahead with this extremely bad retroactive taxation policy.

The Government should bear in mind that the last thing this country needs is to be regarded as a haven for tax terrorism. It could prove to be Dr Phillips’ Achilles’ heel.