Sector claims they are unfairly over-taxed
Well, that’s one thing I picked up from the Sunday Observer’s coverage.
Reading through the Sunday Observer yesterday I noticed at least 3 articles (even the editorial) that have highlighted the impact of the 2012/13 budget on the tourism sector. Here are these 3 articles along with some highlights. They had some good points that we should not take for granted. The truth is though (all things being equal), the tourism sector needs to bear their fair share of the load, but then the question becomes how much can they really bear?
How was the Tax Burden Shared?
In assessing How the budget tax burden was shared they made the point that tourism would be feeling most of the impact from the new measures, followed by telecommunications. Keith Collister states;
If we assume then, admittedly with very incomplete data, that the combined tax impact could be about $6.4 billion on an annualised basis (for the tourism sector), the next largest impact is changes to the termination cost for telephone calls of $5.25 billion (or $6.3 billion annualised based on a June 1st implementation date).
Stabbing The Tourism Industry in the Back
The Editorial further proceeded to emphasize this point in an article titled, Stabbing the Tourism Industry in the back. One of the points made was
The Government has chosen to ravage the tourism industry instead of doing the hard work of running down the tax dodgers. An estimated 80 per cent of company taxes and 50 per cent of property taxes are not being paid to the Government. It is estimated that 250,000 persons who should be paying income tax are not doing so.
If the Government has selected to pillage the industry, what can one say of the Private Sector Organisation of Jamaica (PSOJ)? After months of public relations gimmickry, it clearly has provided no representation for the one industry that has kept the economy going.
Not that we are surprised, because it was said earlier that the PSOJ tax reform committee was bereft of anyone with significant export experience and could not do justice to the sector.
Wow! I find that last part interesting – a clear swipe and the PSOJ (not PSWG this time) tax reform committee.
Taxing the Life out of Tourism
And they further highlighted the point in an article, Taxing the life out of tourism. They highlight that;
The increase in taxation on the industry proposed in the Budget is several times higher than that originally proposed by the PSWG. It has the potential, particularly if coupled with a worsening global environment, to break all but the strongest players. The maths of this statement are simple.
The proposed tax package is likely to see a near doubling of the direct taxation on the industry (see article in today’s Sunday Finance for details), estimated at about $6.9 billion in 2010 by Oxford Economics, based on Ministry of Finance figures. It needs to be fully understood however, that this is not the end of the taxation borne by the industry.
One of the most interesting points from all these articles is the serious financial impact it can have on the sector when the new measures are imposed. They continue;
If the overall tax increase is, say, $6.4 billion on an industry with $90 billion in revenue in 2010, this means anybody making under a seven per cent profit margin would now lose money if the taxation is distributed equally, which would include the vast majority of the small hotel sector. However, the most damaging of the announced measures — a room tax of between US$2 and $12 per room per night rate — would impact the hotels most severely, leaving a tiny sliver of profitability for those operating at a 10 per cent net profit margin.
Such a scenario will result in hotels cutting staff and services to recover profitability. This is a slippery slope for our economy that depends on the jobs our hotels provide and the reputation of quality for which Jamaica is known.
What do you think of the new budget and its impact on the sector?