Tax myths Jamaican entrepreneurs should avoid
YOU MAY have heard them from your business associates, discussed them at the office or argued over them with your relatives and friends – tax myths – but how do they get started in the first place?
It may be difficult to say, but our tax system, which can be quite confusing, is definitely a contributor.
Regardless of how the myths start, some of these notions are clearly false, having been disproved by experts, and, in some cases, are clearly contrary to our tax legislation and thus should not be a basis on which you make your tax decisions.
Below are five of the most common Jamaican tax myths and the truth about each of them.
Myth 1: The business/ company will not have a tax liability if it is making a loss.
One could see how this impression is formed. No profit equals no tax, right? This, however, is not so clear-cut, and here are two reasons.
First, an entity’s accounting profit is not necessarily identical to its tax profit. This is because the accounting standards allow for certain expenses and valuation methods that are not allowed under our local tax legislation. For example, interest owed is a legitimate expense for accounting purposes, however, only interest paid is allowed for tax purposes. As a result, you may have an accounting loss, but removal of this expense may result in a tax profit.
Second, there are a number of taxes that are payable regardless of profits and/or even income. These include the minimum business tax (MBT), general consumption tax (GCT), payroll taxes, and assets tax. Note that some of these taxes may come back to you in the form of tax credits, for example, the MBT you pay can be written off against your income tax liability for the year. Here is where it actually pays to be compliant.
Myth 2: As a business owner, all my personal expenses are tax deductible.
This might easily be the most blatant falsehood on the list, however, a surprisingly large number of entrepreneurs believe this to be true.
Expenses such as your children’s tuition fee, residential mortgage, vacation, etc, are not allowable deductions, for tax purposes. Our Jamaican tax legislation only allows expenses wholly and exclusively incurred in earning the income of the business, with a few allowances made for certain non-business expenses, such as charitable donations made to an approved entity.
Where expenses that serve both a business and personal purpose are unavoidably commingled, a tax deduction is only allowed for the portion of the expense that relates to the business. For example, expenses related to a home office must be apportioned to the business on a reasonable basis, such as square footage.
Myth 3: I only pay over GCT to the tax authorities when I collect it.
This is only acceptable if the registered taxpayer satisfies certain criteria and has been granted approval by Tax Administration Jamaica (TAJ), to account for GCT on a cash basis.
All other registered taxpayers — that is, those earning more than $3 million per year in revenue from their taxable activity — are expected to charge GCT, file monthly GCT returns, and pay over the amount due for the period being reported on, whether or not you have collected the GCT.
Seems a bit unfair? Not to worry, the GCT Act grants recourse for persons who are unable to collect the GCT charged within a reasonable time.
Myth 4: I can’t win if I disagree with the tax authorities.
It may appear that TAJ always wins, but this could not be more further from the truth.
Our tax legislation is there to provide guidance in most taxrelated matters. If you disagree with a decision made by TAJ, you have the right to challenge that decision. Whether on the bases of provisions in the tax legislation or decision made at common law, that is, decisions handed down in previous court cases.
It is best to consult with a tax professional, in these situations, who can advise you of your options and provide guidance. You may not win in all cases. However, there are enough prior cases to show that it is possible to challenge TAJ and have the courts rule in your favour.
Myth 5: All accountants are tax experts.
Just because someone is a certified accountant (CPA, ACCA or CA) it does not mean he or she is a tax expert. It may surprise you to know that the CPA and ACCA curricula do not cover Jamaican tax. Furthermore, tax laws and regulations are continuously changed and updated, making it hard for accountants, without direct experience in the tax-preparation field, to keep up on tax laws. You should, therefore, ensure that the person who prepares your taxes has verifiable tax experience.
It is really no surprise that there are so many tax myths. Falling for any of these myths can have serious financial consequences for you. Every taxpayer is ultimately responsible for the accuracy of their tax filings, whether or not it was prepared by an accountant. As such, ensure that your tax decisions are made on facts, not myths.