Ashford W. Meikle, Staff Reporter
Ethlyn Norton-Coke, tax specialist.
THE PENSION Fund Association of Jamaica (PFAJ) has written to the Minister of Finance, Dr. Omar Davies, expressing its dissatisfaction with Government's policy as it relates to withholding taxes on investments by pension funds.
Currently, pension fund managers are required to deduct withholding tax from interest earned on taxable instruments. It is then the responsibility of the pension schemes to apply to the relevant authorities to have the deducted amounts refunded.
But chairman of the association, Allan Lewis, says that its members "are dissatisfied with the current situation and it is causing concern among trustees and members of pension schemes."
Specifically, the PFAJ points out, the dissatisfaction concerns three main issues:
The lengthy delays in accessing the withholding tax refunds - in some cases as many as two years.
Delay by the Commissioner of Income Tax in processing applications until other submissions have been completed.
Documents being mislaid within the Department of Income Tax.
The association says that some $1.75 billion - or approximately 2.5 per cent of the total value of the respective pension funds is at present outstanding for refunds. The current policy of deducting the withholding tax, says Mr. Lewis, is "inimical to the interest of the plan members since the inability to invest the amounts being withheld reduces investment income and will ultimately reduce their potential benefits."
Attorney and taxation expert, Ethlyn Norton-Coke agrees with the stance taken by the association. "It speaks to the time value of money and a loss of investment opportunities for the pension scheme," she told Wednesday Business. "If you had that money you could have effectively reinvested it if it had not been taken out at all."
Echoing Mr. Lewis' views, she added, "It's the beneficiaries of the pension scheme who are disenfranchised eventually in the long run and this is going to be particularly so because the Financial Services Commission (FSC) fees are so high."
Those who will be particularly hurt are beneficiaries under defined contribution schemes, which depend heavily on the returns earned by fund managers.
Mrs. Norton-Coke said, "What the Pension Association should is to lobby, really lobby the government," to change the current situation.
A pension manager, with whom Wednesday Business spoke, admitted that the new regulation is a "drag on the investments in pension schemes." The executive said that it was taking months for his company to access the funds from the Tax Department.
According to Mrs. Norton-Coke, the current situation "leaves an avenue for corruption" since non-pension funds could also benefit from the refunded amount. This is possible because "the audit is on a random basis - you can't audit everything."
She agrees with the pension association that with the planned monitoring of superannuation schemes by the FSC, the current situation would be unnecessary. But, she goes a little further, saying that "if the pension scheme do not get refunded within three months they (government) must pay back (the refund) with 15 per cent interest as is the case under the GCT system."
