Dennise Williams, Staff Reporter
Left: ETHLYN NORTON-COKE. Right: Pension and income tax refunds are handled by the Refunds Unit at the Taxpayer Audit and Assessment Department at the Donald Sangster Building located on East Street, downtown Kingston. - RUDOLPH BROWN/CHIEF PHOTOGRAPHER
THE GOVERNMENT of Jamaica is now holding up to $2 billion of pensioners' funds in the form of withholding tax, the Financial Gleaner has learned.
When pension funds invest in fixed income securities, the withholding tax is deducted at source. These investments are supposed to be tax free, and so the pension funds are to get the refunds within 40 days. At times, however, the refunds are held up for as much as a year, without interest being paid.
Noted tax authority Ethlyn Norton-Coke of Deloitte & Touche said, "While the pension funds are exempt from interest earned on money, they must apply to the Government for a refund. And it turns out that this is a loss of income to pension fund because of the delay in repayment."
According to a source, this practice is in breach of Section 3.2e of the Pensions Act as the funds are being left idle and are eroded by inflation. Neither the Ministry of Finance nor the Financial Services Commission returned our calls on this matter despite repeated requests.
"The money isn't just going to be given back," she said. "Why? Because the investments are so large that the refunds would be enormous."
Essentially, the pension funds must work with the Government to get this money back as the funds will languish otherwise. But there are techniques that can be used to speed the process.
"There is a fast track refund facility offered by the tax authorities that the pension funds can use. Also, they can ask for part payment and work with the Government."
Another important point in terms of taxes and pensions that Mrs. Norton-Coke brings up concerns individuals.
"When the individual gets a pension, it is subject to taxes and the pension fund is obliged to draw out the income tax," she said. "Remember, you got the contribution tax-free when you were working."
THE GOVERNMENT DOES OFFER SOME RELIEF
"The tax-free threshold is $193,400 annually," she said. "Plus, there is an annual $45,000 related age relief for persons over 65 years and another $45,000 annual relief for pensioners, which start at age 55. That totals a tax relief of $283,440 per year."
Pensioners collecting less than $23,620 per month will, therefore, not pay tax, she stated.
