Jamaica tax system ranked 9th worst worldwide

Jamaica's reputation as a high tax jurisdiction took a further nose dive this week with the release of the new Doing Business Report 2008, showing that the average company continues to give up more than half its yearly profits in the administration and payment of its liabilities to the treasury.

Jamaica's overall ranking in the broad category measuring the 'ease of doing business' plummeted to number 63, from last year's position 50, while in their assessment of the country in the 'paying taxes' segment, the report's authors knocked the island down four places from 166 to 170.

The new ranking tags Jamaica as the ninth worse tax jurisdiction in the world.

The report, produced and published by the World Bank and its affiliate International Finance Coropration, assessed some 178 economies over a one-year period to June 2007.

Based on 10 indicators

The rankings are based on 10 indicators that track the time and cost to meet government requirements in business start-up, operation, trade, taxation, and closure.

They do not assess macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates.

A medium sized Jamaican company pays taxes 72 times per year, using up a total of 414 hours - or 17 days.

The report said the filing and payment of taxes eat 51.3 per cent of company profit, more than three points above the region's 48 per cent and five points above the 46.2 per cent paid by companies in the rich Organisation of Economic Cooperation and Development (OECD) countries.

The ratio of tax to profits, however, is an improvement over last year's assessment when the figure was a point higher at 52.3 per cent.

Jamaica's corporate income tax rate is 33 per cent, but added payroll deductions of some 11-12 per cent, push the liability to about 45 per cent of net income.

A programme under way to consolidate payroll/statutory taxes should cut the number of payments to different revenue agencies, but former Finance Minister Dr. Omar Davies warned earlier this year that the reform will take time.

In the current business-friendliness report, Jamaica also ranked poorly in the area of securing credit and the registration of property, which takes 54 days on average, while its cost of trade across borders - an area in which the country is trying to build comparative advantage through multi-billion improvements at the Kingston port - runs way ahead of its peers in the region and the super nations.

To export a container costs US$1,750 compared to US$1,107 for the region and US$905 in the OECD countries. Imports per container averaged US$1,350 for Jamaica compared to the region's US$1,228, and US$986 in the OECD.

It takes 22 days to import goods, compared to almost 26 regionally, but well below the 10 days in places like Europe and North America.

'Starting a business'

Still the country has outpaced the region in several areas, including the important 'starting a business' category - which is used as a measure of investor friendliness and the nurturing of entrepreneurial talent - as well as the number of permits required (Jamaica 10, region 17, OECD 14), for example, to build a warehouse.

Start up costs, however, topped US$15,200, up from last year's estimate of $14,200, and represented 438.4 per cent of per capita income of US$3,840 on which the Doing Business authors based their analysis.

The region does better on average at 268 per cent, while the start-up spend by entrepreneurs in the richest nations is 62 per cent of per capita income.

"Starting a business in Latin America still takes 68 days on average, longer than in any other region. And the limited disclosure requirements for related-party transactions do not encourage investors," said Sylvia Solf, one of the authors of the report.

"Other obstacles are the region's slow courts and burdensome tax systems."

In Jamaica, however, it takes eight days and six transactions, outperforming both the region as well as the OECD where the average time is 15 days and six transactions.

Colombia made big gains

The report's authors noted that regionally, while reforms slowed down perhaps due to elections in 13 jurisdictions, Colombia made big gains, having "sped up trade, enhanced investor protections, and eased tax burdens."

Trinidad and Tobago also got mentioned for improving its credit information system, with utility companies now providing information to credit bureaus, and for cutting its corporate income tax rate from 30 to 25 per cent.

Jamaica's depressed ranking also knocked it out of the top business-friendly countries of the region from position four last year.

Top three countries

The top three business-friendly countries worldwide were Singapore, New Zealand and the United States, respectively.

Bottom of the pile were the Congo, Central African Republic and Guinea-Bissau. The worst in the Latin American/Caribbean region was Venezuela at No. 172.

The 2006/07 world rankings are being revised to capture the three additional countries - Brunei, Liberia, and Luxembourg - that participated in the survey for the first time this year, the World bank said.