By Lavern Clarke, Staff Reporter
Davies
DR. OMAR Davies, the Finance and Planning Minister, yesterday praised the central bank's strategy which had led to the Jamaican dollar gaining ground in trading against the U.S. dollar.
He was making a four-pronged report to the House on his overseas consultations, the amended cess, the first calendar quarter economic performance, and measures to bring back stability to the foreign exchange market, which included the central bank saturating the market with funds from the Net International Reserves.
Dr. Davies said the strategy to strengthen the Jamaican dollar had worked as the Bank of Jamaica had failed to sell off all the funds it put up on Monday and Tuesday. He interpreted this as a change in the psychology of the market and "good news", since it suggested that purchasers were waiting to buy at a lower rate, spelling further appreciation of the currency.
Also, he announced that trading in Jamaica's international bonds had rallied.
Yesterday the dollar closed at $61.69, representing well over $5 or eight per cent of regained value over the two days - a plus for Jamaica given that a team from Standard & Poor's, the rating agency, is in the island reviewing the country's economic prospects ahead of placing a risk rating on the foreign debt.
Pressed by Audley Shaw, the JLP spokesman on finance, Dr. Davies told the House, that the Bank of Jamaica recently sold more than US$100 million into the foreign exchange market to keep the rate stable.
But the Finance Minister refused to disclose the period of intervention and the precise figures, stating only that those funds did not include the central bank's activities this week.
The Net International Reserves stood at US$1.362 billion in April.
In relation to the two per cent processing fee that has replaced the cess, the minister suggested that the new agreement actually left the private sector worse off. The fee takes effect June 1.
"Unlike the processing, the cess could have been recouped as a credit against income tax," he said, adding that the ministry had estimated that half of the four per cent in prepayments would have been recovered. Businesses will now have to absorb the processing fee within their costs.
For those importers who had begun paying the four per cent, Davies said that since the collections were done under ministerial order, the old arrangement stood and the companies would have to recover when they file their income tax returns.
Eight categories will be exempt from the fee - government, diplomats, international organisations, passengers who spend under US$500; 807 companies; the Food for the Poor charity, and new manufacturers.
With reference to concerns about the three-year exemption for new manufacturers being used to exploit the system and dodge the tax, the Minister said that any attempt at "jim screechy" and legal manoeuvrings to look new, would be exposed.
He outlined a five-step process to getting the waiver:
The company will have to complete an application form;
Application to be submitted along with certificate of registration, TRN, and Tax Compliance Certificate;
Application to be reviewed by either JMA, JEA or PSOJ, and verified by JAMPRO, which might include site visit. JMA, JEA and PSOJ to review the application annually to ensure that applicant still qualifies.
Jampro to issue the certificate authorising the waiver,
Manufacturer presents the certificate along with a C78 form to Customs Department when importing.
He formally announced a compromise with the private sector to amend the four per cent cess to a two per cent user fee to be applied to the cost, insurance and freight value of imports, and continued concerns about the impact of the tax measures on consumers.
The disclosure came with an announcement that two key multilateral agencies will be providing technical and financial support to Jamaica for a review of the tax package announced in the Budget.
The support talks, held last week in Washington, D.C., with the World Bank and the Inter-American Development Bank, also focused on ways to mobilise resources to complete priority projects that are co-financed, Dr. Davies told Parliament, without spelling out the details.
