On May 1, 2013 the International Monetary Fund (“IMF”) approved a four-year Extended Fund Facility arrangement for Jamaica to support the authorities’ economic reform programme.
The main pillars of the program are:
- structural reforms to boost growth and employment (“Pillar (i)”);
- actions to improve price and non-price competitiveness (“Pillar (ii)”);
- upfront fiscal adjustment, supported by extensive fiscal reforms (“Pillar (iii)”);
- debt reduction, including a debt exchange, to place public debt on a sustainable path, while protecting financial system stability (“Pillar (iv)”); and
- improved social protection programs (“Pillar (v)”).
Various legislative changes are taking place in support of these pillars.
Legislative reform by virtue of Acts passed in Parliament to date has been focused mainly on supporting Pillar (iii). The Tax Administration Jamaica (“TAJ”) Act which was given Royal Assent (“assent”) on March 28, 2013 established a body corporate, “with sufficient autonomy in management to facilitate the efficient and effective administration and collection of domestic tax; and for connected matters”. This is in line with the agreement with the IMF to approve this entity as a semi-autonomous revenue agency, this being one of the “urgent steps to strengthen revenue administration”.
Other urgent steps include fast-tracking parliamentary approval of amendments to the Revenue Administration Act. On July 10, 2013 assent was given to the Revenue Administration (Amendment) Act (“RAAA”). The RAAA makes further provisions in relation to the recent empowerment of tax authority Commissioners to apply to the Court for access to information held by third parties such as commercial banks and other regulated financial institutions.
In addition to this, the agreement with the IMF requires that the TAJ be empowered to require mandatory e-filing for groups of taxpayers and/or types of taxes. The RAAA seems to provide for this by empowering the Commissioner General to prescribe forms he considers necessary for the various purposes of this Act.
Also supporting Pillar (iii) is the Charitable Organizations (Tax Harmonization) (Miscellaneous Provisions) Act, given assent on June 12, 2013. This Act amends the Customs Act, General Consumption Tax Act, Income Tax Act, Property Tax Act, Stamp Duty Act and Transfer Tax Act to harmonize the treatment of charitable organizations for the purpose of taxation and connected matters.
Charitable organizations will need to apply for eligibility under a Charities Bill (to be tabled by September 2013) as of the end of November 2013, after which date they will no longer be eligible for exemptions granted under the tax acts.
What may be categorized as the most significant remaining legislative change in support of Pillar (iii) is an Omnibus Tax Incentive Act which is to be tabled in Parliament by September 2013. As of the end of December 2013, the Government of Jamaica (“GOJ”) is not expected to consider new applications under existing tax incentive regimes. Thereafter, new applicants will only be considered under the new Act and will need to meet the new criteria stipulated. The proposed Act will eliminate ministerial discretionary powers to grant or validate any tax relief and “put in place a transparent regime for limited tax incentives”. Any new tax incentives will be implemented administratively without ministerial discretion in its validation based on a contract signed regarding the specific project in question. Furthermore, the IMF agreement requires that incentives will be “published promptly”.
Tax incentives include discretionary waivers which are defined as “any reduction in tax or customs duty payable, effected through the direct exercise by the Minister of Finance of his powers under the various tax statutes; in circumstances where there is no exception in any statute”.
The agreement stipulates a “de minimis cap” of J$10 million per month on granting new discretionary waivers that excludes waivers that are:
- granted to charitable organizations and for charitable purposes;
- required to satisfy the GOJ’s already existing contractual or legal obligations comprised of a CARICOM treaty suspension for goods purchased outside of CARICOM, sector specific arrangements, as well as existing contracts for government projects (which are itemized in the agreement) and
- Waivers from the CET for the procurement of oil outside of CARICOM and waivers relating to financial sector restructuring required in relation to enhancing supervisory functions and facilitating supervision on a consolidated basis.
What appears to be the major legislative support to Pillar (iv) is already in place as the Public Debt Management Act was given assent on December 24, 2012. This Act provides a single statutory source for the Minister’s authority to borrow money for and on behalf of the GOJ. It is aimed at ensuring that the public debt is managed in a more strategic manner including providing a prescription of the purposes for which loans should be utilized, requiring a Medium-Term Public Debt Management Strategy and the establishment of a Public Debt Management Committee. Specific government guaranteed debt-to-GDP ratio targets between the 2016/17 and 2026/27 financial year-ends are contained in this statute.
The other aspect of Pillar (iv), that of protecting financial system stability, is to be addressed by several statutes and policies yet to be implemented. Those include the Omnibus Banking Act which is to establish a “new structure for holding companies of financial conglomerates and subject such entities to consolidated supervision by the central bank” (“BOJ”). It is also to “harmonize prudential standards across deposit-taking institutions, strengthen the BOJ’s corrective action and resolution powers, and reinforce its operational independence for supervision.” Attendant to this will be amendments to the BOJ Act to vest the BOJ with overall responsibility for financial stability. Meanwhile, the Financial Services Commission (“FSC”) Act is to be amended to strengthen the FSC’s enforcement powers against non-banks. These amendments are to be made by March 2014.
Also in furtherance of Pillar (iv), it appears that within the four-year facility period, the current business model of securities dealers may change significantly as the programme aims to achieve an orderly phase-out of the “retail repo” business and encourage instead business models comprising “collective investment schemes” (“CIS”). Amendments to the Companies Act to eliminate or exempt requirements in relation to the registration of unit holders at the Companies Office, and the removal of double taxation for the CIS are proposed to facilitate this. Prior to this, the government is expected to develop a legal and regulatory framework for “retail repos” (in which legal title of the securities remains with the securities dealers) that is distinct from the framework for traditional repos (which involve outright title transfers).
Legislative reform targeted at supporting Pillar (i) is also yet to take place. The Security Interests in Personal Property Bill is currently being considered by Parliament. It is intended to provide for a simplified registration process for security interests in personal property (i.e. property that is not real property) and to stipulate rules to govern priority in which such interests are enforceable. Under this intended legislation will be a Security Interests Registry which is expected to be established and in operation by December 2013.
Pillar (i) is also expected to be supported by:
- an Insolvency Act to be tabled in Parliament by December 2013,
- modernization of the Electric Lighting Act, and
- the drafting of a Natural Gas Act, regulations and policy by March 2014.
A significant number of legislative changes being implemented in support of the four-year economic reform programme on which IMF funding is based have been in contemplation for a long time. Others seem to have arisen from only more recent assessments. The programme has however brought focus to completing all the changes within very limited timeframes. Necessary changes in the operations of businesses, government agencies, and regulatory entities; some uncertainty in the application of new laws; and the need for subsequent amendments to Acts passed within currently required timeframes seem inevitable. However negative consequences from these would appear to be a small price to pay if the changes “create the conditions for sustained growth through a significant improvement in the fiscal and debt positions and in competitiveness”, as the pillars of the program aim to provide.