Companies Suspending Investments Over Tax Reform Uncertainty – JMA Poll


President of the Jamaica Manufacturers Association, Brian Pengelley, while declaring support for the tax-reform project, said the revision of port duties could end up negatively affecting as many as 300,000 jobs.

The Green Paper, on which interest groups have been asked to weigh in, proposes a slew of reforms of corporate, personal income, and consumption taxes.

Jamaican producers are most nervous about the border tax component, which proposes “upfront duties and charges” on domestic businesses ranging from 20.5 per cent to 25 per cent, said Pengelley, concurrent with a reduction in the Common External Tariff on imports to 20 per cent on average, and lowering of stamp duty.

The port taxes are expected to increase costs on local businesses while at the same time hyping their exposure to competition from cheaper imports, a double whammy that both poultry farmers and manufacturers say will lead to the closure of some companies.

This scenario “threatens the livelihood of approximately 300,000 persons employed to manufacturing and agriculture,” Pengelley said in a speech to Kingston Rotarians. A quarter of those jobs are in his sector.

“I want to make it clear that the JMA is in support of tax reform and we have been an active part of the consultation process to this point. We accept that there will be implications and changes will have to be made, but we expect that this will be shared across all sectors. However, we believe that we should strive to ensure that manufacturing, particularly agro-processing and export remains viable and competitive, with the implementation of tax reform,” he said at the luncheon meeting last week.

A JMA poll of its members disclosed planned investments of J$7 billion over the next five years, and while Pengelley did not overtly declare that the uncertainty over taxes would derail all plans, he reported that two-thirds of survey respondents were prepared to scuttle spending programmes (see insert).

Manufacturing has lost some of its lustre since the 1980s; it is estimated to have shed shed more than 25,000 jobs in the period and its contribution to GDP has dropped from more than 20 per cent to just above eight per cent.

Last year, manufacture export earnings were estimated at US$647 million or J$55 billion, but that represents a dramatic decline from 2008 when exports for the sector came in just above US$1 billion or J$85 billion.

Still, Pengelley championed today’s producers as top taxpayers – paying J$56.4 billion into the treasury last year, or “55 billion more than agriculture and 45 billion more than tourism,” he said – and for commanding a larger share of the economy than tourism’s 6.1 per cent contribution and agriculture’s 5.8 per cent.

Manufacturing’s labour productivity is still “unrivalled” at J$519,000 per worker as last measured in 2009; and the sector remains, he said, one of the most reliable drivers of employment and wealth creation.

“With the investment in a manufacturing plant, the opportunity is created to save foreign exchange and provide employment because as much as 1,524 jobs can be created in a factory of approximately 43,000 square feet which is equivalent to one acre of farmed land,” said Pengelley, a beer sales executive with Red Stripe Jamaica.

But not enough people are investing in production despite clear demand, said the JMA head, rolling off a list of market segments with room for entry that includes canned foods, sauces, frozen ready-to-prepare meals, purees and baked products; nutraceuticals and personal-care products, jewellery from decorative stones, and spices.

“Global trade in spices and sauces was estimated at US$8.2 billion in 2009; however, Jamaica exported only US$10.5 million, which is only approximately 0.1 per cent of the international market, mainly to the USA. What an opportunity!” he declared.

JMA survey of members on impact of tax reform:

100% of respondents indicated that the proposed measures will have a negative impact on cash flow;

96% of respondents indicated that the measures will impact the competitiveness of locally manufactured goods;

30% of respondents indicated that the measures will result in the closure of their business;

33.3% of respondents indicated that they will reconsider moving their business to another country, namely Trinidad;

95% of respondents indicated that they have plans to invest over the next five years – an approximate value of J$7B;

66% of respondents indicated that if the proposed tax reforms were implemented they will no longer undertake their investment plans.


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