Competing on Taxes
At his cocktail ceremony to recognise the achievement of our
businesspersons in the Ernst & Young Entrepreneurs 2001 programme
President Bharrat Jagdeo suggested that Business Page examine the fiscal
regime in Guyana and compare it with those of in other Caricom countries.
In today's Business Page we provide in summary form the principal direct
tax measures in five Caricom countries viz. Barbados, Guyana, Jamaica, St.
Lucia and Trinidad and Tobago. Of course in these countries there are other
taxes and indeed other tax systems which are relevant to the investment
decision as are other factors such as the economy, the state of
infrastructure and availability of skills.
Company taxes
Guyana is the only country with dual tax rates for companies. The 45%
rate applies to commercial companies, which are also subject to a Minimum
Corporation Tax of 2% of turnover. In the case of Trinidad and Tobago there
is a Business Levy of 0.20% and an environmental levy of 0.075% of gross
sales.
None of the countries allows losses to be recovered retroactively and
only Guyana, Jamaica and Trinidad allow losses to be carried forward and
recouped without limitation. Only Trinidad and Tobago has group relief
provisions whereby a member of a group of companies may surrender current
trading losses to another member of the group.
Of the five countries, Guyana is the only country that has a long-term
capital gains tax. Like the other countries short-term capital gains are
treated as ordinary income and are taxed at the Corporation tax rates.
With a withholding tax rate of only 10% on royalties and management and
technical fees Guyana has the lowest rate, whereas Jamaica has the highest
rate at 33 1/3%. The maximum export allowance for Guyana is 75% which is
higher than that for Jamaica and St. Lucia (both 50%), but lower than
Barbados (93%) and Trinidad (100%). It is worth noting that under the World
Trade Orgainisation (WTO) commitments, Trinidad and Tobago would be
abolishing export allowance by 2003. Guyana may find itself in a similar
position which will have serious implications for our manufacturing sector.
One recalls that Entrepreneur of the Year Mr. Ronald Bulkan identified the
export allowance as one of the key incentives that make his products and
business competitive.
Double Taxation Treaties
Such treaties are entered into to promote trade and to avoid the same
income being taxed twice. Guyana has entered into treaties with Canada (May
1987), United Kingdom (January 1992) and Caricom (August 1994). By
comparison St Lucia is a party to two such treaties, Barbados ten (10),
Jamaica twelve (12) and Trinidad and Tobago fourteen (14). Only Barbados and
Trinidad have treaties with Venezuela and Cuba, while only Jamaica has a
Double Taxation Treaty with China. Three countries Barbados, Jamaica and
Trinidad have treaties with the United States of America with which Guyana
has only a Tax Exchange Information Agreement.
Other tax incentives
Free Zone Areas
Three countries Jamaica, St. Lucia and Trinidad have designated free zone
areas, which are deemed to be outside the national customs territory and are
therefore not subject to national customs and excise laws. Activities that
may be carried on within free zones include manufacturing, commercial,
office, warehousing or professional activities.
Tourism
All the countries offer various forms and levels of incentives to the
tourism sector and tourism related projects. Tourism related projects
include the establishment of visitors booths, preservation of monuments and
museums, the construction or equipping of a new restaurant, and the
provision of recreational facilities.
The incentives include tax holidays, initial and annual allowances, and
exemption from duty and consumption taxes. In St. Lucia a hotel may be
granted exemption from income tax for a period of up to 15 years while for
extensions to existing approved products the exemption is for a maximum of
10 years.
Barbados offers incentives such as 150% deductions of certain expenditure
incurred for the purpose of encouraging tourists to visit Barbados. It also
allows for the deduction in calculating assessable income the lesser of 150%
of the contribution made to the Tourism Authority or 150% of 3% of pre-tax
profits.
Agriculture
Guyana offers a land development allowance of 10% per annum on the cost
incurred in the development or improvement of agricultural land. Agriculture
is not covered under the Income Tax (In Aid of Industry) Act although the
milling of rice, refining of sugar and the canning industry are. In Guyana,
tax holidays are only available under this Act and agricultural undertakings
are not therefore entitled thereto.
Trinidad offers to approved agricultural holdings exemption from tax for
a period of 10 years from the date of approval of the agricultural holding
while Barbados grants tax rebates varying from 10-18% on expenditure on
agricultural equipment, St. Lucia gives specific exemptions to income on
certain agriculture activities and Trinidad offers special incentives to
Agri Lending institutions by exempting tax of 50% of the loans granted to
approved agricultural holdings.
Next week we will look at indirect and personal
taxes in these countries and consider some of the other factors, which
appeal to investors.
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