SMALL BUSINESSES would suffer a major disadvantage from a change in the tax rules proposed by the Ministry of Finance and Planning, second vice-president of the Jamaica Chamber of Commerce (JCC) Edward Khoury said yesterday.
A Ministry Paper, which accompanied the 2005 Budget presentation by the Minister of Finance, indicated that with effect from January 1, 2006, businesses would only be able to carry forward tax losses for five years, rather than indefinitely, as is the case at present, he said. Enabling legislation has not been enacted as yet, but it does not appear that the idea has been abandoned.
Most small businesses make losses initially before moving into profit in later years. The effect of restricting the recovery of past losses out of present taxable profits would be to impose a tax on losses, he said.
HARSH ENVIRONMENT
Mr. Khoury, who was speaking on behalf of JCC President Noel daCosta, argued that even without the reimposition of the limited carry-forward of tax losses, Jamaica's tax legislation is unduly harsh in its treatment of businesses making losses. He was addressing a JCC board meeting at the Private Sector Organisation of Jamaica office in St. Andrew.
In Jamaica, there is no provision for group relief, he said. In many modern tax administrations, where a member of a group of companies incurs a loss, the group is entitled to net off this loss against the profits earned by other group companies in arriving at the group's taxable profit.
GROUP RELIEF RECOMMENDED
Both Barbados and Trinidad and Tobago grant group relief, which was one of the recommendations of both the Collister Tax Reform Committee of the
mid-1980s and the Matalon Tax reform Committee of 2005, he said.
In Jamaica, there is no provision for terminal or carry-back losses. In some countries, such as Canada and the United Kingdom, when a business ceases to operate, tax losses may be carried back for three years. This, together with unlimited loss carry forward, was seen by the Collister Committee as providing a longer averaging period for tax and, therefore, as a way of moderating the tax disincentive inherent in riskier lines of business.
The anti-loss environment inherent in the tax system discourages companies undertaking new and risky ventures, he said.
