Scrap stamp duty, transfer tax – IMF
THE INTERNATIONAL Monetary Fund (IMF) has suggested that the Jamaican Government, over the medium term, phase out what it has described as the highly distortive transfer taxes and stamp duty in favour of a capital gains tax.
The recommendation comes almost 322 years after stamp duty legislation was first introduced in England – in June 1694 – ostensibly to raise funds towards carrying on the war against France, and just over 12 years after the United Kingdom replaced it with another tax on land transactions.
Jamaica inherited the tax on its adoption of the British political system, including the institutions and practices associated with the Westminster model of governance.
Improving the efficiency of the tax system and countering an eroding tax base are key priorities, the IMF said in its December 2015 country report on Jamaica.
Over the last five years, it said, there has been a welcome revenue shift from income to consumption taxes. However, the tax base is being eroded by a decline in government interest payments, falling real wages in the public sector, a rising pay-asyou-go threshold, and specific excise taxes that are set in nominal terms.
Noting that several policy options are available to improve the efficiency of the tax system, the IMF said its staff, which undertook the 10th review under Jamaica’s four-year economic support programme, favoured the government focusing over the near-term on a wider coverage of the General Consumption Tax and indexing specific excises to inflation.
“Over the medium term, distortive taxes such as transfer taxes and t he stamp duty should be phased out in favour of a capital gains tax,” it said.
“The existing property tax should also be modernised,” said the report. It added that the Jamaican authorities “are weighing these options and are conscious of minimising the i mpact on lower income groups of any tax policy change. They also noted that frequent changes to tax measures involve sizable compliance costs, especially for small businesses, and could corrode confidence.”
DRAGS ON GROWTH
Suggesting that there is scope to further improve tax efficiency, the report said “taxes on gross asset values such as the transfer tax and the ad valorem stamp duty are highly distortive, discourage profitable transactions and encourage informal ownership, all of which are drags on growth.”
In that regard, it said a capital gains tax, although more difficult to administer, would be less distortive.
Currently, no capital gains tax is levied in Jamaica. However, capital gains earned from selling property that are considered business income may be subject to income tax.
According to information posted in the website of Tax Administration Jamaica (TAJ), documents are stamped as proof of the payment of stamp duty and/or transfer tax and to make them legal and binding.
Transfer tax is assessed and paid by persons transferring real properties such as land or shares and/or transferring property on death. In the case of transfer of land, the tax is paid by the seller on the market or appraised value.
TAJ said legal or commercial documents often presented for stamping include: bills of sale, deed poll, discharge of mortgages, hire purchase agreements, insurance policies, appli- cation to register land, leases of land, loan agreement, mortgages, power of attorney, promissory note, sale agreements, securities, and instruments transfer of property.
The IMF report also said that strengthening property taxes would provide a much needed source of own revenue for local governments, and thus reduce transfers from central government. The property tax, which tends to be progressive, has also been shown to be associated with higher growth rates and encouraging more efficient property allocation.
Furthermore, compliance can be improved when propertyt-ransfer taxes, which are prone to collusion and under-declaration, are eliminated, it added.