Dennise Williams, Staff Reporter
MARTIN
'The general thinking was to broaden the tax base. When you look at the transfer tax, there is a lot of evasion. The
capital gains tax would be balanced by the
elimination on stamp duties ... Additionally, the death-related
transfer tax would be reduced from 15 per cent to five. So it is about trade offs.' - ETHLYN NORTON-COKE
THE QUESTION of the imposition of a capital gains tax was posed at Mayberry Investment Limited monthly Investor's Forum titled, 'Capital Gains Tax: Would it Be Good For Jamaica?'
"It would be absolutely ridiculous! It should not even be considered. If they attempt to do it, we must do everything we can to stop it!" This was the opinion given by R. Danny Williams, chairman of Ravers Limited, one of the speakers at the forum.
The seminar, held at the Knutsford Court Hotel on February 23, was in the form of a panel discussion where several financial luminaries spoke about the implications of such a tax.
And the overall consensus was in line with Mr. Williams.
Debbie Ann Gordon, attorney-at-law said, "This discussion was instigated by the Matalon Committee tax recommendation whereby they say that the capital gains tax will generate between $650 million to $1 billion for Jamaica. The proposal will be for real property, stocks and other assets to be taxed. In exchange the transfer tax would be abolished. The feeling is that it would bring greater equity to the tax regime."
Ms. Gordon explained how the capital gains tax would work. "If John buys a painting for $100,000 and then later sells it to Mayberry for $300,000, on the face of it, John has made a gain of $200,000 and that would be taxed. But it is not as simple as that. There are many complexities involved. First, how do you account for the effects of inflation? What about the costs involved in acquiring property? What if the payments made by Mayberry were in instalments and the gain is not realised until the last payment; when would the tax be due? And if Mayberry then gives the painting to a family member, would there be a relief from tax because it is a gift?
"The capital gains tax would give rise to hoarding of cash. And it would create a lock in mentality whereby investors would simply hold on to their investments and not sell for fear of the tax."
Continuing on the theme of complexity, Curtis Martin, president and CEO of Capital and Credit Merchant Bank said, "While the recommendation focused on capital gains tax, what about capital losses? If investors are not allowed to deduct losses then that means there is an unfriendly bias in the tax code."
Mr. Martin believes that a
capital gains tax would cripple the Jamaica Stock Exchange (JSE). "In 2001, there were 20,000 transactions on the stock market. When the tax on dividends was removed, by 2004 there were 86,000 transactions. There has been a significant expansion of the JSE and a capital gains tax would cripple that. It is a tax that would reduce wealth."
In fact, Mr. Martin is of the opinion that investors would not react kindly to such a tax. "A capital gains tax would create negative investor sentiment. People would not invest in the stock market just to avoid paying the tax. This would cause a capital flight and create foreign exchange instability."
Interestingly, Ethlyn Norton-Coke, one of the presenters, was on the Matalon Committee and advocated the merits of a capital gains tax. "The general thinking was to broaden the tax base. The committee looked at economic efficiency. When you look at the transfer tax, there is a lot of evasion. The capital gains tax would be balanced by the elimination of stamp duties. And the transfer tax on real property would then be a flat five per cent. Additionally, the death-related transfer tax would be reduced from 15 per cent to five. So it is about trade offs."
And to placate the audience, Mrs. Norton-Coke quickly added, "But it is just a recommendation. You take it or leave it."
