Junior Market Tax Breaks and National Income

I don’t think that all the members of the MoneyMax Community are aware of Jamaica’s Junior Market and what it does. While I will be explaining more about the Junior Stock Market in a series I intend to do about the Stock Market in general (and specific to Jamaica), I will explain a little right now…. so that what I will say at the end will be clearer.

The Junior Market
Jamaica has a stock market where companies can allow anybody to own a part of that company by purchasing units in that company (called shares). The Jamaican stock market has always had a regular index (grouping of stocks on the exchange) and they recently added a Junior market index (to group the Junior market stocks).

Now, I will skip a lot of things, suffice to say, the Junior market in Jamaica has been in operation for a little while now, and about 12 companies have been listed, including Lasco and Dolphin Cove, and ALL the companies on that index receive benefits for being a publicly listed company, the most attractive being a 10 year tax break (5 years full tax break and 5 years of 50% tax). Junior markets seem to be a normal thing around the world.

Should big name companies be allowed to go tax free? How much, and for how long?

So now that I have explained that, In the Sunday Observer (Nov 27, 2011), Robert Johnson discusses the issue of the tax breaks received by the companies on the Junior  Market and explains reasons why people should not get too agitated about these companies not paying taxes as a benefit for being a listed company. Please note, that the Junior Market has very reputable and high profitable companies that are listed on it. In their defence however he states;

THOSE who snarl at company tax incentives ignore the fact that corporate taxes account for less than 10 per cent of the island’s J$287.2-billion annual revenue. And like hungry wolves, many have pounced on the 10-year tax holiday offered to the small to medium enterprises that list on the Junior Stock Market. Yet, they are missing the point.

Consider this. As a result of competitive pressures, for the last two financial years Carib Cement has lost money. Given our current tax regime, Carib Cement is able to carry forward nearly $685 million in tax credit resulting from its performance in 2010. This, I would argue is in multiples of what the government has foregone from the new companies listed on the Junior Market.

Another eye opener though was the number of tax acts which he states currently exist in Jamaica.

There are approximately 12 incentive acts covering almost every major industry, from mining to motion pictures with tax holidays that range from five years to 10 years. There is the

  1. Foreign Sales Corporation Act;
  2. the Urban Renewal Act;
  3. the Hotel (Incentives) Act;
  4. the Export Industry Encouragement Act;
  5. the Resorts Cottages (Incentives Act);
  6. the Jamaica Export Free Zones Act;
  7. the Shipping (Incentives) Act;
  8. the Industrial Finance Companies (Income Tax Relief) Act;
  9. the Jamaica National Heritage Trust Act;
  10. the Bauxite & Alumina Industries Encouragement Act;
  11. the Petroleum Refinery Encouragement Act;
  12. the Approved Farmer Status;
  13. and the Venture Capital and Accelerated Depreciation Act.

My assessment

Do I believe big named, highly profitable companies on the Junior market should go tax free? Do I believe the system was properly set up to benefit both the companies and the country? It should be noted that without proper background on the matter we can easily misunderstand the objective of the Junior market and why the regulators have set up regulations like these. One undeniably major pull to ensure that more companies are listed (and remain) on the Junior stock market in Jamaica is the tax break incentive put in place. I would agree that the tax breaks are very attractive which is causing tremendous growth in the stock exchange. However should the breaks have been so long and uncapped remain another issue.

What do you think about the tax breaks given to companies listed on the Junior Stock Exchange? Trinidad is currently thinking to launch their own Junior Exchange, should they take a similar approach?

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Junior Market Tax Breaks and National Income

I don’t think that all the members of the MoneyMax Community are aware of Jamaica’s Junior Market and what it does. While I will be explaining more about the Junior Stock Market in a series I intend to do about the Stock Market in general (and specific to Jamaica), I will explain a little right now…. so that what I will say at the end will be clearer. (more…)

    This entry was posted in MoneyMaxMusings. Bookmark the permalink.