Prudence N. Barnes, Contributor
MECHANICAL AND Electrical (M&E) contractors operating in the island's construction industry are calling for the removal of the general consumption tax (GCT) on their services, noting that an amendment to the act in 2003 which removed GCT exemption from certain construction-related services, is placing them in an uncompetitive position that could eventually see many being driven out of business.
Neville Morrison, president of the Electrical Contractors Association of Jamaica, and members of his executive who spoke to the Financial Gleaner, said they were seeking a level playing field and as such would like to see the removal of the application of GCT to their services as it was having a negative impact on the sector. The 36-member grouping is also seeking clarification on a number of other issues, among them the charging of GCT on equipment rental.
The GCT amendment which took effect in May 2003 reversed a legislative provision which gave tax exemption to most services in the construction industry. While the act upheld GCT exemption for general contractors (the overall contractor/builder), the act reclassified services such as the installation of heating, lighting, air conditioning, power supply, plumbing and other services, as areas which attract the GCT. All players in the construction industry pay GCT on inputs such as materials, but providers of M&E services, who are usually engaged as sub-contractors on projects, are now charged GCT on labour.
In highlighting their dilemma, the electrical contractors said the application of the GCT to their services meant that "M&E contractors now had to factor in the 16.5 per cent GCT on its invoicing for labour, added to the two per cent contractor's levy (a deductible tax on profits), and a two per cent import cess." These costs, they noted, were invariably passed on to the consumer.
"This puts us at a disadvantage when bidding for contracts because we will always have to factor the 16.5 per cent GCT into our bids," Mr. Morrison said, adding that there were loopholes within this system that could allow for abuses to the detriment of M&E contractors.
"If a general contractor wants to avoid the GCT situation, all he has to do is employ an electrical contractor on his staff," the contractors observed. "So we can get cut out of the entire process."
They also fear that homeowners with construction projects could also simply decide to use an unregistered contractor or a general contractor, to remove the GCT burden from their expenditure.
A GENUINE CONCERN
While questioning the rationale for the difference in treatment from the general contractors in the application of taxes, the M&E contractors said that the "issue is not an unwillingness to pay taxes, but a genuine concern for the future of the sector."
The resolution of this matter, they stated, had become even more pressing, with the recent 1.5 per cent upward movement in the GCT which puts the total GCT at 16.5 per cent.
The contractors said they have been lobbying the Government since 2003 when the provision was first instituted, citing a letter to Finance Minister, Dr. Omar Davies, in June 2003. They have also subsequently met with Mr. Clive Nicholas, director-general in the Tax Administration Department and other personnel of the ministry, but say they are not satisfied with the progress made. The minister was unavailable for comment and Mr. Nicholas was reportedly off the island when efforts were made to contact him earlier this week.
Winston Lawson, tax administration specialist in the Office of the Director-General, who spoke to the Financial Gleaner in the absence of the director-general, said he could not comment on the policy behind the application of GCT to one section of the construction industry and not to another.
He noted, however, that the amendment was effected at a time when "there was a general effort to broaden the tax net". "That was the time when a number of previously exempt services were made taxable," he explained.
Mr. Lawson admitted that the amendment has seemingly "introduced a measure of inconsistency" to the industry. "A contractor setting up a new building will be exempt, but these specialised services (as part of the process), are taxable," he acknowledged, conceding that "there is a valid argument to be made."
And the electrical contractors are not alone in making this argument. Providers of ventilation and refrigeration services point to an already heavy tax burden on their sub-sector with what they view as "excessive" import duty paid on ventilation equipment, now compounded by a 16.5 per cent GCT on their services.
Horace Nelson, president of the Jamaica Air Conditioning, Refrigeration and Ventilating Association (JARVA) said the GCT "has increased significantly the cost of equipment, and the service to supply and install," adding that consumers were the ones facing the higher costs. Mr. Nelson revealed that his association has also made representation to the Ministry of Finance for relief and is awaiting a response.
Some M&E contractors are also predicting that more of their peers will "move underground" making the legitimate contractors even less competitive and Government itself will also begin to suffer by losing that source of revenue. "It can lead to skulduggery and a take-over of the industry by unscrupulous persons," one ventilating and refrigerating contractor said.
Don Mullings, president of the Incorporated MasterBuilders Association, the professional group representing general contractors and which also provides associate membership for M&E contractors, expressed surprise at the issue, noting that it is first time he was being made aware of the problem concerning the GCT.
The electrical contractors association, he said, was an associate member of the MasterBuilders Association and attended its meetings which provided a forum for the discussion of issues facing the sector.
"The MasterBuilders Association has always had open dialogue with the Ministry of Finance and the minister himself to resolve issues, even if the matters are not always settled in our favour," Mr. Mullings said.
He said he understood the concerns of the M&E contractors as it related to their need for a level playing field and the possible loopholes in system. As such, he said the Incorporated MasterBuilders Association would put the issue on its agenda.
