Ministry of Finance & Planning Tax Administration Jamaica. TECHNICAL NOTE Amendments to the Asset Tax Act. FY 2012/13 Revised Revenue Measures

Transcription

1 Ministry of Finance & Planning Tax Administration Jamaica TECHNICAL NOTE Amendments to the Asset Tax Act FY 2012/13 Revised Revenue Measures March 13, 2013

2 Table of Contents LEGISLATION...4 MAIN AMENDMENTS TO THE ATA...4 (I) PERSONS LIABLE TO TAX... 4 (II) TAX RATE... 4 (III) VALUE OF ASSET... 5

3 Purpose The purpose of this Note is to provide guidance on the operation of the amended Asset Tax (Specified Bodies) Act as per 2012/13 Revenue Measures. Objective As a part of the GOJ 2012/13 Revenue Enhancement Measures outlined to the House on the 6 th of June 2012, the Minister of Finance and Planning (MoFP) asked the Honourable House to consider modification of the Asset Tax Regime. The Revenue Enhancement Measures covered: (i) A general rate modification (ii) The establishment of a specific regime for certain specified bodies which are regulated by the Bank of Jamaica (BOJ) and the Financial Services Commission (FSC), and (iii) The changing of the due date from September 1 st to March 15 th in keeping with the policy to reduce the number of transaction days for payment of taxes. For the purpose of this document: Tax means Asset Tax Commissioner means Commissioner General of the Tax Administration Jamaica (CG-TAJ) Bank of Jamaica is here after referred to as BOJ Financial Services Commission is here after referred to as FSC Asset Tax (Specified Bodies) Act is here after referred to as ATA Specified Regulated Entities means certain specified entities that are regulated by the FSC or BOJ The taxable value of assets for a Specified Regulated Entity is specified in the Second Schedule (See Appendix 2) Other specified bodies means all specified bodies that fall within the definition of Section 2 of the ATA, with the exception of those classified as Specified Regulated Entities The value of assets of other specified bodies means the aggregate of (i) The amount which the CG-TAJ is satisfied, is the value (as shown in the books of account) of that body s assets as follows (i) Any estate or interest in land; (ii) Equipment, furniture, machinery, plant and other moveable property; (iii) Any other interest, right or benefit; and (ii) The amount of (A) Outstanding balances on loans and advances made by the specified body; (B) The specified body s cash in hand and in bank deposit; (C) Outstanding balances due to the specified body by sundry debtors other than those specified in clause (A) Page 3 of 16

4 Legislation TECHNICAL NOTE The current ATA is amended to form the legislative framework. Unless otherwise stated, all reference is to the ATA. Imposition of ATA The ATA imposes tax on specified bodies. Specified Body is defined in Section 2 as: (a) A company within the meaning of the Companies Act, other than a company in respect of which a licence has been granted pursuant to Section 16 of that Act by the Minister responsible for the administration of companies. (b) A society registered under the Industrial and Provident Societies Act (c) Such other body as may be prescribed by Order subject to negative resolution. Main Amendments to the ATA (i) Persons Liable to Tax The law is amended to introduce new rates of tax and the bases on which it is computed for specified bodies covered under the Act in the following manner: (a) Companies other than a company granted a licence pursuant to Section 16 of the Act. (b) Entities other than specified regulated entities. (c) Specified Regulated Entities (limited to the following institutions regulated by the BOJ and the FSC): (i) Deposit Taking Institutions (DTIs) (ii) Insurance Companies (General & Life Insurance) (iii) Securities Dealers Are subject to a rate as specified below in (ii) (a) (d) Other specified bodies currently covered by the ATA including: (i) Unit Trusts and Mutual Funds (ii) Superannuation Funds and Approved Retirement Schemes (iii) Societies Registered under the Industrial and Provident Societies Act (iv) Remittance Companies (v) Cambios (vi) Insurance Brokers Are subject to rates specified in the table at (ii) (b) below (ii) Tax rate The tax rate is to be applied to the taxable value of the assets. (a) For the Specified Regulated Entities, a rate of 0.14% is to be applied to the taxable value of the assets. Page 4 of 16

5 (b) For other entities, tax is payable in accordance with the schedule set out in table below: Value of the Asset Annual Tax (J$) Less than $50,000 5,000 At least $50,000 but less than $0.5M 25,000 At least $0.5M but less than $5M 50,000 At least $5M but less than $50M 75,000 At least $50M 100,000 Other entities mean (i) companies other than a company granted a licence pursuant to Section 16 of the Act and (ii) entities other than specified regulated entities (iii) Value of Assets Taxable Value of Assets for Specified Regulated Entities: (A) For the BOJ regulated entities (the assumed asset tax base is): The taxable value of the assets is the Aggregate Value of Assets minus [IFRS and Prudential Loan Loss Provisions] minus Withholding Tax Receivables owed by GOJ minus Required Capital. Required Capital as defined in the Second Schedule IFRS and Prudential Loan Loss Provisions means to Loan Loss Reserves (B) For the FSC regulated entities: (a) Security Dealers: The taxable value of the assets is the Aggregate Value of Assets minus Regulatory Capital minus Withholding Tax Receivables owed by GOJ. Regulatory Capital as defined in the Second Schedule Withholding Tax Receivables refers to the gross carrying value at the balance sheet date of tax withheld at source on interest and owed by the Government of Jamaica (Commissioner General Tax administration). (b) Life Insurance Companies: The taxable value of the assets is Aggregate Value of Assets minus Withholding Taxes Receivables owned by GOJ minus Required Capital minus Assets Supporting Annuity Liabilities. Required Capital as defined in the Second Schedule Withholding Tax Receivables refers to the gross carrying value at the balance sheet date of tax withheld at source on interest and owed by the Government of Jamaica (Commissioner General Tax administration). Page 5 of 16

6 (c) General Insurance Companies: The taxable value of the assets is Aggregate value of Assets minus Withholding Tax Receivables owed by GOJ minus Required Capital minus Reinsurance Recoverables. Required Capital as defined in the Second Schedule Withholding Tax Receivables refers to the gross carrying value at the balance sheet date of tax withheld at source on interest and owed by the Government of Jamaica (Commissioner General Tax administration). Value of Asset for Other Specified Bodies: For other specified bodies, the value of asset shall be as defined in Section 3 (9) of the ATA 1 According to the ATA, the value of the asset shall be aggregate of the following: (a) Any estate or interest in land (b) Equipment, furniture, machinery, plant and other movable property (c) Any other interest, right or benefit (d) Outstanding balances on loans and advances made by the specified body (e) The specified body's cash in hand and in bank deposit (f) Outstanding balances due to the specified body by sundry debtors other than those specified in sub-paragraph (d) Exemption Credit Unions remain exempt from this tax regime. Upon becoming regulated, the applicable asset tax base applies. Charitable organizations Not for profit organizations Return The existing Asset Tax Return (Form AT01) will be modified to reflect the amendments to the ATA. A new form (AT02) is developed for Specified Regulated Entities Other specified bodies will continue to use the current Asset Tax Return (Form AT01) Filing & Payment Due date Asset tax is a current year tax due and payable on an annual basis The return is due and payable by March 15 of the same year and shall be based on the financial statements for the permitted accounting period (within the meaning of the Income Tax Act of the previous calendar year. 1 Value of the asset declared in final accounts including balance sheet and profit & loss account as it relates to the assessment of income tax for the year of assessment immediately prior to the relevant date or the date authorized by the Commissioner. Page 6 of 16

7 The new rates and related tax are to be accounted for by March 15, 2013 and the rates are based on the value of the assets stated in the balance sheet and profit & loss account for year ending 2012 and after (See Appendix 2). Tax due for year of assessment 2011 is due in the same year based on the previous year financial statement (2010) using the rates set out in Appendix 1. Tax due for year of assessment 2012 is due and payable in the same year based on the previous year financial statement (2011) using the rates set out in Appendix 1. Final Tax & Income Tax Treatment Asset tax is a final tax. The tax is not allowable as a deduction under the Income Tax Act. Amendments have been made to sections 13 and 15 of the Income Tax Act. This is effective for YA 2013 Income Tax Return and after. Operation of the Tax Specified Bodies are required to make and submit to the Commissioner General of Tax Administration Jamaica an annual declaration of the value of their assets and shall be liable to pay the tax prescribed in the Schedule on or before March 15 in each year. The declaration shall be based upon the value of the asset as indicated by the balance sheet and profit and loss account relating to the assessment of income tax for the year of assessment immediately prior to March 15 in each year. Where any specified body fails to furnish to the Commissioner General any declaration or the prescribed tax, the Commissioner General may issue the prescribed notice to the specified body requiring that body to submit the declaration and pay the tax within the period specified in the notice. Where it appears that the value of the assets shown in any declaration is incorrect, the Commissioner may: (i) Serve on that specified body a notice stating that the value of the asset and the tax payable shall be assessed at the amounts specified in the notice, and subject to the notice the tax shall be paid. (ii) Substitute such amount as he estimates to be the correct value, not exceeding the amount which he is satisfied is the amount expended by the specified body in acquiring the asset. Where a specified body disputes the amount of the assessed value of assets or the tax payable thereon specified in any notice served, that body may apply to the Commissioner General, by notice of objection in writing stating precisely the grounds for objection, to review and revise that amount. Page 7 of 16

8 In the event of any specified body which has objected to any amount specified in a notice of assessment subsequently agreeing with the Commissioner General as to the amount of the value of assets or the tax payable thereon, the notice of assessment shall be amended accordingly. Where no such agreement is reached, the Commissioner General shall give notice in writing to the specified body of his decision in respect of the objection and if the valuation is altered or the tax payable varied, due adjustment shall be made and amounts paid in excess shall be refunded and amounts payable shall be recoverable as arrears. Any person aggrieved by any decision of the Commissioner General may appeal to the Commissioner General within 30 days of receiving the Commissioner s decision. Where any tax being due and payable remains unpaid after the relevant date, interest of 15% per annum shall be charged thereon from the day next after the relevant date until the date of payment. Page 8 of 16

9 Appendix 1 Previous Asset Tax Rates Description of Specified Bodies Tax 1 Where the aggregate value of the assets does not exceed $50,000 $1,000 2 Where the aggregate value of the assets exceeds $50,000 but does not exceed $500,000 $2,000 3 Where the aggregate value of the assets exceeds $500,000 but does not exceed $1,000,000 $4,000 4 Where the aggregate value of the assets exceeds $1,000,000 but does not exceed $5,000,000 $10,000 5 Where the aggregate value of the assets exceeds $5,000,000 but does not exceed $10,000,000 $15,000 6 Where the aggregate value of the assets exceeds $10,000,000 but does not exceed $50,000,000 $20,000 7 Where the aggregate value of the assets exceeds $50,000,00 but does not exceed $100,000,000 $25,000 8 Where the aggregate value of the assets exceeds $100,000,000 $35,000 Page 9 of 16

10 Appendix 2 New Asset Tax Rates FIRST SCHEDULE (Sections 3 & 3A) Rates of Tax in relation to Declaration of Assets PART I. Specified Regulated Entities 0.14% of the value of the assets as determined in accordance with the SECOND SCHEDULE PART II. Other Specified Bodies Description of Other Specified Bodies Tax 1 Where the aggregate value of the assets is less than $50,000 $5,000 2 Where the aggregate value of the assets is at least than $50,000 but less than $500,000 $25,000 3 Where the aggregate value of the assets is at least than $500,000 but less than $5,000,000 $50,000 4 Where the aggregate value of the assets is at least $5,000,000 but less than $50,000,000 $75,000 5 Where the aggregate value of the assets is at least $50,000,000 $100,000 Page 10 of 16

11 Appendix 3 The Value of Assets for Specified Regulated Entities SECOND SCHEDULE (Section 3) Basis of Value for Regulated Companies Bank of Jamaica Regulated Companies Aggregate value of assets minus IFRS and Prudential Loan Loss Provisions minus Withholding Tax Receivables owed by Government of Jamaica minus Regulatory Capital. In this paragraph (i) Aggregate Value of Assets refers to the value of assets as reported on the balance sheet, and the total value of all Banker s Acceptances, Guarantees, Letters of Credit that may be carried as off-balance sheet items and such other contingencies as the Bank of Jamaica may by notice specify. The Annual Asset Tax is based on the value of the aggregate assets held by the institution at its financial year end and is calculated by reference to the values contained in the audited financial reports submitted to the Bank of Jamaica. (ii) (iii) (iv) IFRS Provisions refers to those provisions determined and accounted for in relation to impaired assets in accordance with the International Financial Reporting Standards Prudential Loan Loss Provisioning Reserves refers to those provisions and reserves required by the supervisory authority (being the Supervisory Department under the Bank of Jamaica Act) in relation to non-performing and other adversely classified credit exposures, including i. Specific Provisions, which are applied against specific exposures, based on observed credit quality deficiencies including but not limited to delinquency; ii. General Provisions, which are established both (i) Against the aggregate dollar value of all performing credits and also against adversely classified credits which are not subject to Specific Provisions; and (ii) To absorb both on-and off-balance sheet items on which Specific Provisions cannot yet be identified on an item-byitem basis Loan Loss Reserves refers to those provisions and reserves required by the supervisory authority (being the Supervisory Department under the Bank of Jamaica Act) in relation to non-performing and other adversely classified credit exposures that exceed such provisions and reserves required by the supervisory authority, including i. Specific Provisions, which are applied against specific exposures, based on observed credit quality deficiencies including but not limited to delinquency; and ii. General Provisions, which are established both (a) Against the aggregate dollar value of all performing credits and also against adversely classified credits which are not subject to Specific Provisions; and (b) To absorb both on-and off-balance sheet items on which Specific Provisions cannot yet be identified on an item-by-item basis (v) Withholding Tax Receivables refers to the gross carrying value at the balance sheet date of tax withheld at source on interest and owed by the Government of Jamaica (Commissioner General Tax administration). Page 11 of 16

12 (vi) Regulatory Capital (Tier 1 Capital) (a) For Commercial Banks and Merchant Banks it refers to the aggregate of : (i) Paid up capital (ordinary shares or stock); (ii) Qualifying paid up capital (non-redeemable, non-cumulative preference shares); Qualifying paid up share premium in respect of referenced shares or stock; Capital raised from an issue of shares to a Government agency or company; and (iii) Eligible reserves; (b) For Building Societies it refers to the aggregate of: (i) Permanent Capital Fund (ii) Deferred Shares (iii) Capital Shares (iv) Statutory Reserve Fund (v) Retained Earnings Reserve Fund; LESS the aggregate of: Any goodwill, start-up expenses and other intangible assets; and Any operating profit/loss for the current year; and any accumulated profits/losses from previous years; and any loss position arising from revaluation reserves arising from fair value accounting for financial assets and liabilities; and Any other deduction designated by the supervisory authority Financial Services Commission Specified Regulated Companies Securities Dealers Aggregate value of assets minus Regulatory Capital minus Withholding Tax Receivables owed by the Government of Jamaica In this paragraph a. Aggregate value of Assets refers to the value of assets as reported on the balance sheet. The Annual Asset Tax is based on the value of the aggregate assets held by the institution at its financial year end and is calculated by reference to the values contained in the audited financial reports submitted to the Financial Services Commission (FSC). b. Regulatory Capital is the product of the Capital Adequacy Ratio and the Risk Weighted Assets ( RWA ) which may be specified by the FSC by notice in writing from time to time. Regulations 2A and 2B of the Securities (Licensing and Registration) Regulations 2 give the Financial Services Commission ( FSC ) the authority to specify a Capital Adequacy Ratio that must be maintained by its licensees. The capital adequacy ratio to be maintained by each securities dealer is expressed as a percentage and is determined by comparing the securities dealer s capital base with its risk-based assets and other risk exposures after applying respective weights specified by the FSC. c. Withholding tax Receivables refers to the gross carrying value at the balance sheet date of tax withheld at source on interest and owed by the Government of Jamaica (Commissioner General Tax administration). 2 Regulation 2A & 2B were inserted in the principal regulations by the Securities (Licencing & Registration) (Amendment) Regulations, 2001 Page 12 of 16

13 (ii) Insurance Companies (including insurance intermediaries but not including associations of underwriters) a. General Insurance: Aggregate Value of Assets minus Withholding Taxes Receivables owed by GOJ minus Required Capital minus Reinsurance Recoverables b. Life Insurance: Aggregate Value of Assets minus Withholding Taxes Receivables owed by GOJ minus Required Capital minus Assets Supporting Annuity Liabilities. In this paragraph (1) Aggregate Value of Assets refers to the value of assets as reported on the balance sheet. The Annual Asset Tax is based on the value of the aggregate assets held by the institution at its financial year end and is calculated by reference to the values contained in the audited financial reports submitted to the Financial Services Commission. (2) Withholding Tax Receivables refers to the gross carrying value at the balance sheet date of tax withheld at source on interest and owed by the Government of Jamaica (Commissioner General Tax administration). (3) Required Capital refers to: For General Insurance, the product of: (i) The Minimum Capital Test (MCT) percentage as prescribed in Regulation 5 of The Insurance (Actuaries) (General Insurance Companies) (Amendment) Regulations, 2011 and (ii) The capital required for general insurance companies and branches of foreign companies carrying on general insurance business in Jamaica as prescribed in Regulation 3 of The Insurance (Amendment) Regulations, 2011 (4) Reinsurance Recoverable refers to the sum of (1) Reinsurance Recoverable for Unpaid Claims and Adjustment Expenses (incl. IBNR) and (2) Reinsurance Recoverable for Unearned Premiums, where: (i) Reinsurance Recoverable for Unpaid Claims and Adjustment Expenses (incl. IBNR) includes the balances due to an insurance company from reinsurers for paid, unpaid, incurred but not reported losses and loss expenses, based on the reinsurance contracts in force. The reinsurance recoverable is determined by taking into account: Actual claim payments made by the insurance company; Using actuarial calculations to determine outstanding claims; and The insurance company s ability to cede losses and loss expenses under existing reinsurance contracts. (ii) Reinsurance Recoverable for Unearned Premiums represents amounts that would have to be reimbursed by the reinsurance company if an insurance policy, which is ceded under the reinsurance contact in force, is cancelled by the policyholder/insured. (iii) Reinsurance Recoverable on the general insurance balance sheet represents two categories of recoverables from reinsurers, that is, recoverable for claims and for premiums. Insurance companies pass on some of their financial liability to reinsurers and the reinsurers agree to pay a portion of the insurer s losses in exchange for a premium. Reinsurance recoverable generally represents reimbursements expected by an insurer from a reinsurance company based on the reinsurance contracts in force. Page 13 of 16

14 For Life Insurance, the product of: (i) The Minimum Continuing Capital Surplus Requirements (MCCSR) percentage as prescribed in Regulation 21 of The Insurance (Actuaries)(Life Insurance Companies) Regulations, 2001; and (ii) The capital required as prescribed in Regulation 29 of The Insurance Regulations, (5) Asset Supporting Annuity Liabilities refers to: (i) Assets backing policyholder s liabilities for pension and annuity contracts; or (ii) Policyholders liabilities for pension and annuity contracts whichever is less Note that in this definition: a. Pension contracts have been included in order to retain the tax relief on pension business currently granted by tax authorities; and b. The deduction has been limited to the value of pension and annuity liabilities. Page 14 of 16

15 Appendix 3: Asset Tax Return (AT01) For Other Specified Bodies (non-regulated entities) See printed copy of Form AT01 Page 15 of 16

16 Appendix 4: Asset Tax Return (AT02) For Specified Regulated Entities (BOJ & FSC regulated institutions) See printed copy of Form AT02 Page 16 of 16