It’s hard enough contending with high-interest rates, elevated inflation and a hostile global environment without having to navigate an unforgiving asset tax imposed by the government.
The asset tax is a distortionary one that was supposed to be temporary between the years 2013 to 2016. Jamaican financial companies already pay a 33 per cent tax and this asset tax depletes their capital base
Speaking at an investment briefing earlier today, CEO of JMMB Group Keith Duncan said: “While we have been dealing with compressed margins on our portfolios, we had to pay the asset tax. This asset tax is based on the assets on books and not profitability of the underlying assets. Therefore whether or not these are earning assets that are giving returns that you would want to see on a risk-adjusted basis, you have to pay this asset tax to the Government.
“JMMB paid J$1.3 billion in asset tax in Q1. When you look at that against the dividends of J$500 million paid to our shareholders in early November, you can see what we are up against. In the budgets of 2016 and 2019, the Government planned to reduce the asset tax from 0.25 per cent to 0.125 per cent. The financial sector got together with the Government in 2020 at the height of the COVID-19 pandemic and said let’s give our people and the Government as much support as we can and protect the most vulnerable. We agreed to return the asset tax to the Government with the understanding that when things normalised we could return to the path of reducing the asset tax which is inflated on Jamaican institutions.
“We are hoping that the Government will hear us because it reduces our capital, impacts the industry and our ability to pay dividends to shareholders.”
JMMB’s Q2 results were nothing to crow about as it now adopts a diversification strategy to get out of the doldrums. The decision to look to its banking arm is paying off.
For the period under review, JMMB posted operating revenue of $11.70 billion with net profit falling to $1.9 billion. Net interest income is down by 27 per cent to $4.15 billion.
This underscores Duncan’s point on the asset tax – it’s a burden it has to bear during hard times.
So who is lobbying to lift this yoke? It is a matter for the Jamaica Bankers Association (JBA), the Jamaica Securities Dealers Association (JSDA) and the Insurance Association of Jamaica (IAJ to bring before the Government and arrive at an accommodation. Our Today understands that these bodies have written to the Ministry of Finance on this matter and are awaiting a response.
“Duncan continued: “ The companies most severely impacted by this asset tax are the securities dealers, the banks and insurance companies. In 2020 we came to the decision not to draw down on the Government’s budgetary allocation at a time when there was a lot of uncertainty. As responsible corporate citizens, we thought this was the right thing to do. Even the IMF agreed the asset tax was to be a temporary measure. Today we have bounced back from COVID, the country’s revenues are soaring, we are able to pay out healthy packages to our public sector. We believe it is time now that the Government of Jamaica look at reducing or removing the asset tax. The JBA, the JSDA and the IAJ must now get this into the public domain.”