Ethlyn Norton-Coke, Contributor
NORTON-COKE
GENERAL CONSUMPTION Tax (GCT) is indeed the main feature of the Minister of Finance's tax package announced in his twelfth Budget presentation for the Fiscal year 2005/06 to Parliament, and it is expected that approximately $8.5 million of the total tax increase of $9.35 million will be from the increase in the GCT rate and other adjustments to the allocation of items from 'zero-rated' status to 'exempt' status.
Part of the additional revenue is expected from the increase in the Special Consumption Tax (which is a part of the GCT Act) on cigarettes of $.320 million.
When the General Consumption Tax was introduced on October 22, 1991, one of the objectives was that it would be easy for taxpayers to understand and for business people to administer, bearing in mind that the registered taxpayer is really the agent of the Government, i.e. collecting the tax on its behalf and accounting for same to the Government by way of returns and payments, either monthly or bi-monthly to the inland revenue department. Unfortunately, over time, with the various amendments to the General Consumption Tax Act, the administration of this tax has become increasingly complex.
However, it is expected that these changes will help to simplify the administration process, both for the registered taxpayer/businessman (agents of the Government) and the tax administrators, as compliance is expected to improve. However, the bottom-line is that it is the final consumer who will bear the full brunt of the GCT increase.
THE CHANGES ARE AS FOLLOWS:
Increase in GCT Standard Rate
Effective May 1, 2005, the GCT standard rate will be increased from 15 per cent to 16per cent on taxable goods and services.
This will be the highest rate of tax on consumption referred to as valued added tax, in the English-speaking Caribbean as the rates in Trinidad & Tobago and Barbados remain are 15 per cent. It is expected that a tax on consumption will shortly be introduced in St. Lucia.
The history of rate increases is as follows:
1991 (October 22) - 10 per cent
1992 (June 18) - 12.5 per cent
1995 (April 15) - 15 per cent
2005 (May 1) - 16.5 per cent
Taxpayers are reminded that if a good or service is not specifically indicated in the schedules to the general consumption tax Act as 'exempt' (third schedule) or 'zero-rated' (first schedule), then it is taxable. In relation to services the fourth schedule is applicable.
Those taxpayers who are on the invoiced/accrual basis of accounting for the tax are reminded that goods sold and delivered prior to May 1, 2005 will be subject to the 15 per cent rate even if invoiced after May 1. The same principle applies to taxpayers who/which account for tax on the collections/cash basis.
However, in respect of the Insurance Industry, the tax point is the date of collection, whether or not an invoice was issued.
It is therefore necessary to ensure good record-keeping over the transition period.
The effect of the rate increase is that the Government will get a 10 per cent increase in revenues and the prices of taxable goods and services should increase by approximately 1.3 per cent.
Highest GCT increase on certain building materials from 12per cent - 16per cent.
GCT on certain building materials were not increased in 1995 when the standard rate increased to 15 per cent and remained at 12per cent as a result of a strong lobby to keep down the price of construction particularly housing. The GCT rate on these items will on 1st May 2005 move from 12per cent to 16per cent which include:
Portland Cement/grey building cement
Cement Blocks;
Steel reinforcing bars;
Quarter inch (") steel wire;
Number sixteen (16) steel wires.
The president of the Incorporated Masterbuilders Association has indicated that this increase in the GCT rate on the products that previously were at the 12per cent will have a less than one per cent increase in this cost of construction. This means that a house that costs $3 million should increase in cost by only $25,000 - $30,000 (approximately).
If the increased costs can be contained to a one per cent increase in construction, then there is not expected that any slowdown in the industry ought to be experienced as a result of the increase in GCT, provided that it is only the GCT that increases and not the prices of the building products.
The GCT on lumber, board and other products will be increased from 15 per cent to 16per cent.
The above is not intended to provide legal, accounting or other advice, and should not be acted upon without professional counsel, and it does not necessarily represent the view of the Tax Review Committee. Ethlyn Norton-Coke is the Director of Tax Services, Deloitte & Touches (Jamaica).
