Government to be stretched to find replacement revenues to make up for tax losses

The local arm of global tax and consulting firm, PricewaterhouseCoopers (PWC) is throwing its full support behind the recent announcement by Finance Minister Dr Nigel Clarke to discontinue the imposition of a Customs Administration Fee (CAF) on export declarations with an export value less than US$500.

Though the effective date of the discontinuation is April 1, 2021, the CAF will continue for exports above US$500.

Historically, a CAF of J$3,000 has been imposed on each Export Declaration filed with the Jamaica Customs Agency.

In its assessment, PWJ Jamaica said: “This CAF on export declarations has been a significant deterrent for micro, small and medium enterprises (MSMEs) exporting small value items in low volume. In some cases, the CAF can cost nearly as much as the item being exported. Of the 43,000 declarations noted by the (finance) minister, 11,000 were for export values below US$50.”

In these circumstances, PWC Jamaica argues that MSMEs are often forced to absorb the CAF charged unless they can pass it on to the purchaser of the goods (which in turn may make the price uncompetitive).

“We welcome the introduction of the de minimis value of US$500 on exports, which will allow small businesses to be more competitive, particularly when trading on online shopping platforms,” PWC Jamaica declared.

Justifying the discontinuation

In making the announcement in Parliament last week, as he opened the 2021-2022 Budget Debate, Clarke reasoned that the CAF has created a significant cost for exporters, particularly manufacturers of crafts and other artisan products who export in low volumes on a retail basis via online sales.

Clarke noted that, of 43,000 export declarations filed, 73 per cent related to export by air freight but represented only six per cent of exports by value whereas 27 per cent of the declarations (sea freight) represented 94 per cent of export value.

As a result, the minister announced that CAF shall no longer be levied with effect from April 1, 2021 on export declarations with an export value less than US$500. Export declarations for exports valued at more than US$500 will continue to attract the CAF.

This measure is expected to result in a loss of tax revenue of J$70 million for 2021-22. Turning to its overall assessment of the 2021-2022 budget, PWC contended that it is welcomed that “the minister appears to have found sufficient fiscal space for 2021-22 to avoid having to find additional taxes to fund the national budget notwithstanding the significant fiscal downturn”.

However, the auditing and consulting firm, stated that “given that this inflow is expected to be a one-off, the Government will therefore need to find replacement revenues next year and this will depend on the ability of our economy to rebound in 2022-23. This in turn will depend on how quickly Jamaica can get the pandemic under control, secure sufficient vaccines and distribute same and be ready to participate in the anticipated rebound in the global economy in due course”.

The firm argued that if the Andrew Holness administration is unable to do this, Supplemental Budgets could be required later in the year.