Regulations modernised to facilitate more MSMEs, establish Ja as nearshoring powerhouse

As the Jamaican Government continues to fine-tune the framework to transform the island into a viable logistics hub, the regulator of the special economic zones (SEZ) says entities are no longer required to export at least 80 per cent of their output as a condition for admittance.

Interim CEO of the Jamaica Special Economic Zone Authority (JSEZA), Kelli-Dawn Hamilton, explains that the world has changed a lot “since our first foray into zones, and [over the years] Jamaica has transitioned to a more modern regime that removes the requirement for 80 per cent of outputs to be exported and allows companies to determine their markets of choice”.

Importantly, the new regime also allows for the integration of the country’s micro, small and medium-sized enterprises (MSMEs) into the global value chain (GVC), through the waiver of General Consumption Tax (GCT) on the purchase of goods and services being used within the zone.

“There are many ways to benefit from the regime and take advantage of opportunities, especially in the manufacturing industry. It is an ideal way to grow businesses, increase exports and contribute to Jamaica’s economy,” Hamilton said, pointing out that the country possesses the necessary ingredients to emerge as a nearshore manufacturing powerhouse, with SEZ regime playing a pivotal role in the process.

SEZs are designated geographic areas designed to attract local and foreign investments, offering unique fiscal incentives distinct from the rest of the country.

In an interview with JIS News, Hamilton acknowledges the potential that lies within the manufacturing industry, and as a result, “we continue to prioritise this sector by identifying ways in which the SEZ Regime can help increase its growth”.

“We are also working on identifying solutions where there are challenges, to make the SEZ regime more beneficial to our stakeholders,” she added.

Jamaica has a long history with free zones being established in the country, dating as far back as the 1970s. Currently, there are 5,400 Special Economic Zones (SEZs) existing across 147 countries worldwide.

Detailing the benefits of the regime, the JSEZA senior director of regulations, policy, monitoring and enforcement, Ainsley Brown, notes that during the transition and redesigning of free zones to SEZs, “the Government of Jamaica made a deliberate policy decision to diversify the traditional export processes under free zones”.

As a result, “the SEZ regime was introduced as a catalyst for wider economic development and a mechanism to better facilitate foreign direct investments that lead to greater global value chain integration,” Brown added.

This major change has positioned Jamaica to take advantage of the many nearshore manufacturing opportunities driven by this new regime.

One such opportunity is for Jamaica’s SEZs to act as ‘onshore’ export platforms for local businesses, facilitating a reduction of the associated logistics, transport and administrative costs of trading across borders.

The JSEZA senior director explains that “the SEZs, while physically located in Jamaica, are considered to be separate from the local economy and are a captive export market for local producers to engage global value chains without leaving the geographic boundaries of Jamaica”.

From this, SEZ developers and occupants operating in Jamaica stand to gain several benefits, as they “are given customs duty relief on imported goods destined for the zone, including construction materials, equipment and inputs into production for as long as these goods remain in the SEZ or are re-exported,” Brown outlined.

The fiscal benefits also include a zero per cent corporate income tax on rental income for developers and a 12.5 per cent corporate income tax for occupants, which can go as low as 7.75 per cent when certain performance-based tax credits are applied.

Citing a report issued by Tax Administration Jamaica (TAJ) for January to March 2022, Brown pointed out that more than J$2.1 billion was pumped into the local economy as a result of the GCT zero rating linkage fiscal incentive.

“The zero rating of GCT stimulates local sales by not only saving Developers money on the construction and maintenance of their zones but also encouraging Occupants to purchase locally produced goods and services at a lower price,” he said.

Existing manufacturers, too, also benefit from the regime, as they can open new revenue streams by becoming developers for their very own suppliers or other suppliers.

They are, therefore, being encouraged to take advantage of the nearshoring opportunities, as the country’s strategic geographical location is within a four-hour flight radius to over half billion of the world’s population.

“Jamaica’s nearshore location, combined with its shipping, aviation and digital connectivity infrastructure, as well as the SEZ fiscal incentives, make it an attractive destination for manufacturers pursuing nearshoring strategies,” Brown told JIS News.

Developing Jamaica into a nearshoring destination also forms part of the Government’s efforts to increase the capacity of the manufacturing industry, which has been identified as a priority area for development in the Vision 2030 National Development Plan.

Affirming the Government’s commitment to support the sector, Minister of Industry, Investment and Commerce, Senator Aubyn Hill, says that “the support for the sector does not stop there. We have executed and continue to execute trade missions to create and increase market access for all our investors”.

“The ministry continues to work with all our stakeholders to create an economic environment to upskill our labour force and facilitate investments and trade activities in Jamaica,” he added.