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Nuances of General Consumption Tax and its Implications on Jamaican Businesses

The genesis of General Consumption Tax (GCT) Act in Jamaica dates back to October 22, 1991. Back then, GCT was envisage to be the saviour and moderniser of numerous archaic tax regimes. The birth of the aforementioned Act was expected to lead to greater simplifications and application of value added taxation in Jamaica, but this was not the case. Since its inception, numerous registered taxpayers, for the purposes of GCT have felt the full wrath of an Act that most deemed highly complicated and very nebulous in some instances. Some of these nebulousness can be attributed to the application of services, reimbursements or recovery of expenditures.

Supply of Service

The deeming provisions under 18(6) of the GCT indicates that, “anything which is not a supply of goods but done for a consideration is a supply of service”. On the interpretation of this sub-section, it appears that the provision of service is all inclusive and endeavours to capture all supplies that do not entail a good. Consequently, one may argue as to whether or not the receipt of sponsorship entails a taxable supply of service or not. The interpretation of the Act suggests that the receipt of sponsorship may be regarded as a taxable supply where a registered taxpayer receives a benefit or an exposure from giving the said sponsorship. The rationale emanates from the idea that the recipient of the sponsorship has received a consideration for provision of some form of publicity to the sponsor, consequently, the recipient of this consideration, should report this as a taxable supply and account for the GCT output tax accordingly. Where no benefits are received, then the receipt might not be taxable.

On the other hand, others argue that supply of cooked meals and drinks in a restaurant, bar or hotels, entails a supply of good. However, for the purposes of GCT, this entails a supply of service in accordance with the fourth schedule of the said Act. The problem is also amplified when the same items used in the provision of the meals are exempt goods according to the third schedule of the Act. For example raw foods stuff, meat and ground provisions supplied locally are exempt goods for the purposes of GCT. However, where the original form of the goods are being modified for example to provide meals with various exempt goods, then it becomes of supply of service, which is taxable in accordance to the fourth schedule of the Act.

On a similar note, where the provider produces a good, where on its treatment or further processing, it is used to produce a subsequent good, then the provision of the intermediary good, is a service provided by that taxpayer. It is even more nebulous as it relates to the importation of services. On the importation of services by a registered taxpayer, the importer for the purposes of GCT is required to assume the responsibility of the supplier and purchaser of the said service simultaneously. In assuming this responsibility, the entity is required to charge the relevant GCT output tax as though he is the supplier and remit the GCT output tax to Tax Administration Jamaica. The said taxpayer may also be able to claim the amount paid as an input tax on the same GCT return in the period filed. Where the importer is not a registered taxpayer for the purposes of GCT, he is still required to charge GCT output tax on the imported service on a miscellaneous form (4G), but he might be unable to claim any input tax on amounts paid to the government, which some argue as being inequitable.

Recovery or Reimbursements

It is even more fascinating as it relates 18(4) of the GCT Act, which indicates that “where a registered taxpayer receives an amount by way reimbursement, recovery or otherwise in respect of goods or services acquired by him in making a taxable supply, he is deemed to have made a taxable supply”. According to 18(4), where monies are received from insurance settlements for goods such as equipment, furniture or inventory that are taxable or where GCT input taxes were earlier claimed by the registered taxpayer, then it is a taxable supply and the monies received from the reimbursement is deemed the consideration. The same is also true for the receipt of insurance claims for business interruptions that emanates from loss of revenues during period of force closure, is deemed a taxable activity based on the said provision of the Act.

Implications

As a result of the issues earlier explained and more, some registered taxpayers deemed the GCT Act as one of the most cruel and viscous, which is not properly understood, could possible cripple their businesses and livelihood as a result of its harsh consequences, if not appropriately understood and adhere to. Hence, it is proposed that if GCT is to be considered one of the main panacea to the country’s economic problems there needs to be lower levels of ambiguities and more simplifications of the various provisions under the Act for the average taxpayers who do not possess an abundance of resources to engage the services of qualified tax/accounting experts. As these services are not cheap.

The Way Forward

It is also advised that if the Jamaican economy is to grow and navigate its way through the effects of this terrible pandemic, the policymakers need to craft more robust taxation policies that are not too complicated and inequitable such that it could possibly stifle the prospects of local flagging businesses.

By: Kerwin D. Hamil

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