ENTREPRENEURSHIP. Implications of Tax Policies on

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1 Implications of Tax Policies on ENTREPRENEURSHIP Meris Haughton Director Communications, TAJ International Conference on Entrepreneurship June 26, 2014

2 Charting the Course Destination Administration Tips Tax Policy Compliance Measures Overview Incentives Services

3 Overview of TAX POLICY & ADMINISTRATION

4 Tax Policy - MOF Primary goal to raise revenues Develops and introduces tax policies that shape incentives and are crafted to enhance economic growth Fosters new business creation and creates a supportive climate for innovative firms Considers multilateral conditionalities

5 Tax Administration - TAJ Administers domestic tax policies and laws Develops compliance strategies aimed at promoting voluntary compliance and protecting revenue Maintains records of taxpayer accounts Provides collections services for several Government agencies

6 Are Taxes Important to Entrepreneurs? Business owners with an understanding of the principles of registration, filing, payment and reporting are more likely to adhere and save themselves time and cost. Business owners don t need to have a deep understanding of tax laws and exceptions. Business owners can hire expertise - tax advisors, accountants, and attorneys all of whom are eager to help you save money on your taxes.

7 Piloting Through REVENUE MEASURES & POLICY CHANGES

8 Revenue Measures Withholding Tax on Insurance Premium GCT: Imported Services Unifying SCT rate: alcoholic products Motor vehicle: Reduction in CET & SCT MV: Increase in age (8 10) for GCT Increased Asset Tax Imposition of GCT of Government Purchases Minimum Business Tax Increase in PIT Threshold

9 ASSET TAX REGULATED ENTITIES Value Of Asset Entities regulated by BOJ Asset Value defined by BOJ Life Insurance Co (for one year after which it should revert to the rate being paid by other regulated entities) Rates Prior To Y/A 2014 New Rates Y/A 2015 (Due March 15, 2015) % %

10 ASSET TAX UNREGULATED ENTITIES Value Of Asset Rates Prior To Y/A 2014 New Rates Y/A 2015 $ $ > $50,000 5, , $50K and over but less than $1/2M $1/2M but less than $5M $5m and over but less than $50M 25, , Note: there is no change in the above rates 50, , , , $50M and over 100, ,000.00

11 GCT on Government Purchases Implemented June 1, No zero-rating (with exceptions) GCT registered taxpayer must provide government entity with GCT invoice Government entity will withhold GCT and provide supplier with Withholding Tax Certificate (WTC) Use WTC to claim credit on GCT monthly return

12 Minimum Business Tax (MBT) Applicable to both companies & individuals $60,000 per annum due: Jun 15 - $30,000 Sep 15 - $30,000 Payable once commence/cease operation during year MBT can be used as credit

13 Minimum Business Tax (MBT) Does not replace Income Tax Paid under main TRN not per branch number Registered charities and individuals with gross income below $3M are exempt. Unpaid MBT subject to 1.5% penalty per month

14 Minimum Business Tax (MBT) Minimum Business Tax Excess Payment Company Used as a credit against company income tax Will not be refunded or be used to set off against any other income tax liability Individual Used as a credit against personal income tax May be refunded or carried forwarded to any other period. Not applicable against MBT In the Event of a Loss No refund Amount may be refunded or credited against any other income tax liability Payments Via Payment Advice Via Payment Advice Employment Income Tax Liability MBT -Not applied against Employment Income Tax

15 Income Tax Threshold The annual PIT threshold will be increased from $507,312 to $557,232 (up by $49,920) effective January 1, The Golden Age and Pension exemptions remain at $80,000 each.

16 Fiscal INCENTIVES

17 Fiscal Incentives Regime Fiscal Incentives Act, 2013 a.k.a. Omnibus Legislations effective January 1, Acts repealed; 4 Acts remain Amendments to Junior Stock Exchange benefits incentives to continue for companies listed prior to January 1, Companies listed after January 1, 2014 entitled to a reduced incentive period from 10 years to 5 years.

18 Components of Fiscal Incentives Employment Tax Credit Restriction of Tax Losses Amendment to Capital Allowances Productive Inputs Relief (PIR)

19 Employment Tax Credit (ETC) Engage trade, profession or vocation There must be income tax payable for that YA in order to claim; You must be an employer who has filed (SO1) & paid on time Regulated companies, persons operating under a repealed or current incentive not eligible

20 Benefits of ETC Promote employment Reduce labour cost increase after tax cash flow & after tax profit reduce income tax effective rate reduce income tax liability

21 Computing ETC Step 1: Total payroll statutory contributions for NIS, Ed Tax, NHT & HEART (employee & employer s portion) filed/paid on time Step 2: Compute tax chargeable (i.e. at 25%) on profits from trade (exclude non-trade income /passive investment income). Step 3:Claim ETC as computed at Step 1 or a maximum 30% of the amount computed at Step 2, whichever is lower. NB. ETC is not refundable and cannot be carried forward (or back) for use in other years of assessment.

22 Restriction of Tax Losses Tax losses will continue to be carried forward indefinitely; Off-set restricted to 50% of the chargeable income (before taking into account the losses) in any year Losses from an approved farming activity may be used to off set income from other sources. The approved farmer will also be subject to the 50% limitation.

23 Tax Losses & New Business The cap will not apply: For the first five years of operation as determined by the Commissioner General; or where the taxpayer s gross revenue from all sources for the relevant year of assessment is less than $3M

24 Capital Allowance Regime Asset purchased on/after January 1, 2014 governed by new capital allowance regime assets to be written off using the straight line method standard application across sectors restriction to qualifying assets Expanded definition of Industrial Buildings

25 Capital Allowance Increased rate of IA for machinery used in manufacturing/packaging Increased total allowance for private motor vehicles to $J equivalent of US$35,000 Increased for trade vehicles from 12.5% to 20% Introduced 20% initial allowance for capital expenditure on the construction, alteration or renovation of such buildings. (no purchase) Extended for intellectual property rights Extended for pure or applied scientific research

26 Capital Allowance Schedule Categories - Buildings Initial Allowance Rate Period Annual Allowance Rate Industrial buildings 20% See below Non-industrial buildings 0% See below Annual allowance All Commercial Buildings: (a) Buildings & structures primarily constructed of concrete, steel, brick, stone cement or similar materials (a) Buildings & structures primarily constructed of other inorganic materials such as galvanized iron, corrugated metal or similar materials 25 years 4% 10 years 10% (a) Buildings & structures primarily constructed of wood or other organic materials 8 years 12.5% (a) (a) 1. Plant & Machinery Machinery directly used in the production of primary products or the manufacture or automated packaging of goods Automatic data processing equipment, calculators, cash registers and other equipment falling within (Tariff Headings and 84.71) as well as parts/accessories thereof 25% 8 years 12.5% 20% 5 years 20% (a) Equipment falling with Tariff Headings 84.69, as well as 0% 5 years 20% parts/accessories thereof (b) Telephones and other equipment falling within Tariff Heading as well as parts and accessories thereof (a) Other plant & machinery 0% 8 years 12.5%

27 (a) Capital Allowance Schedule Categories Motor Vehicles Private motor vehicle based on a cap of US$35,000 Initial Allowanc e Rate Period Annual Allowance Rate 8 years 12.5% (a) Trade vehicle 5 years 20% (a) Rent-a-car /Tour bus /PPV taxi 5 years 20% 1. Intangibles (a) Scientific research and development 5 years 20% (a) Intellectual Property Rights a. Cost less than US$10,000 b. Cost greater than US$10,000 (a) 5 years 14 years 20% Approx. 7.14%

28 Productive Input Relief (PIR) The PIR allows productive inputs relief for the production of primary products and the manufacture of goods (Part 5 of Customs Act) Goods imported as raw materials or intermediate Equipment & parts Packaging materials consumables

29 Productive Input Relief (PIR) The productive input relief has also been granted to the following sectors: Creative arts Health sector Tourism Sector Hotel or resort Cottage Tourism Attraction

30 Delivery of SERVICE

31 Service Through Partnership Super Form: Single registration point for new companies at COJ formation of company, TRN, GCT, NIS & NHT S03: Single quarterly payment form for self-employed persons Captures information re Income Tax, Ed Tax, NIS & NHT Tax Clinics: Collaboration with JBDC

32 Multiple Service Channels INLINE 29 Tax Offices plus 2 Large Taxpayer Offices Restricted to office opening hours & contend with lines ONLINE File and pay ALL main tax types (payments by credit card) Convenient 24/7 operations, from home or office DIRECT BANKING Bank to bank payment transactions Sign-up for service required ELECTRONIC DROP BOX Available in Revenue Service Centres (large offices) May be used for cheque and return drop offs OUT STATIONS & SPECIAL TAXPAYER ASSISTANCE Operated periodically in communities; Income Tax filing Allows alternate access to taxpayers

33 Issues & Strategies for COMPLIANCE

34 Compliance Strategies TAXPAYER EDUCATION THRUST Information sessions on new initiatives; Tax Advisory Visits Sustained programme to assist MSME; Special Taxpayer Assistance Programme PAYE FOCUS Increase number of PAYE and Ed Tax cases assigned for review and collection Work with other statutory agencies NHT, NIS, HEART ENFORCEMENT ACTION Publish list of offenders taken to court &/or arrested; Acts as a deterrent Improve case selection based on risk approach TAX ARREARS WRITE-OFF Implement Regulations Analyse remaining debts & notify taxpayers accordingly; Pursue collections of reduced liabilities CUSTOMER CARE CENTRE Identify taxpayers who typically file returns late Contact them to file and pay on time

35 3rd Party Information WHO WHAT WHEN WHY HOW ANY TAXPAYER SERVICE PROVIDERS RETURN IMPLEMENT 2014/15 WIDEN TAX NET & COLLECTIONS WRITTEN NOTICE DISTRIBUTOR UTILITY CO. SALES RETURN FOR YEAR 2013 CROSS REFERRENCE REQUEST VIA MEDIA/ HEALTH INS. CO. PURCHASES LIST DUE JUNE 2014 TEST ACCURACY OF RETURNS VERBAL EVIDENCE MDA/PUBLIC OFFICER SCHEDULES PERIODIC IDENTIFY NON-FILERS / STOP-FILERS MOU CONTRACT

36 Compliance Check Up Ask yourself: o Am I duly registered where this is required? o Have I filed all relevant returns with TAJ? o Have I filed on or before the due dates? o Are my returns accurate? o Have I paid all liabilities? o Were payments made on or before due dates? NO to any means you are NOT 100% compliant and could be subject to enforcement actions

37 Closing TIPS & REMARKS

38 Tax Tips for Entrepreneurs Don t go it alone Do-it-yourself not advisable Seek help to do taxes Pay estimated quarterly taxes Keep business & personal separate Legal requirement Reduces amount on final return Set up separate accounts Practice can be costly

39 Tax Tips for Entrepreneurs Use business type best suited Company, Sole Trader or Partnership Be Compliant Document deductible expenses File and pay when due Pay on account if necessary Incurred in earning income Keep records for 6 years

40 Know ALL tax filing/payment dates Interest & penalties apply to late payments Think TAX in planning & forecasting Speak with a Compliance Officer if you receive a tax notice or have a difficulty meeting obligations Request statement of account Remember tax evasion is a criminal offence Maintain mutual respect between Tax Officer & Taxpayer Refer unresolved matters to General Managers RSC

41 Contacting TAJ TAX-HELP ( )

42 Closing Remarks We agree that tax policies impact everyone, including entrepreneurs. We are improving our collaboration with our valued stakeholders to bring greater understanding of tax policies. We encourage the use of alternate channels instead of inline. We are working together to serve you EVEN better.

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