Ashford W. Meikle, Business Reporter

Dr. Omar Davies, Minister of Finance. - File

Finance minister Dr. Omar Davies now owes pension fund managers billions dollars having held on to withholding taxes that should have been refunded on their investments.

"We have had meetings with the Financial Secretary and have written quite a number of correspondences about it to the Ministry of Finance," Life of Jamaica's executive vice president for employee benefits, Errol McKenzie, told Wednesday Business.

"The Finance Ministry is aware of and has acknowledged the liabi-lities they have and they say that they are unhappy with it and they are working towards allocating funds to pay back."

Opportunity cost

Not only has the payouts been delayed for years, the pension fund managers will have to suck up the opportunity cost of the interest they could have earned if they had reinvested the proceeds.

The ministry has no plans to compensate pension fund managers by paying interest on the tax refunds, industry players fear.

Yesterday, attempts at comment from the ministry fell flat. Financial Secretary Collin Bullock, speaking through communication head Cordell Braham, redirected Wednesday Business to Vinnette Keene, head of Tax Administration, whose phone went unanswered.

In 1999, the Minister of Finance introduced withholding tax on investments made by pension funds, which up to that point were exempt from taxation.

Long wait

At the time, a fast-track window was established at the Tax Administration Department at Inland Revenue so that refunds could be made in 45 days.

That refund period, according to some managers, is now taking two to three years.

Jamaica's total pension industry is now valued at about $120 billion, a 20 per cent jump on the Financial Services Commission's 2004 estimate.

It's unclear just how much the finance ministry is in debt to the pension funds, but a ministry source said the liability is captured under 'tax on interest' in the fiscal accounts, which for the first three months of this fiscal year was running at $6 billion - $2.5 billion higher than programmed.