Tax Talk

GCT Threshold Increase to 10,000,000, what does this mean for you?

A part of the 2019-2020 Revenue Measures GCT Threshold went from $3,000,000 to $10,000,000. The effective date of this amendment to the legislation was April 1, 2019. This was done to encourage growth in the economy, particularly, in the micro and small business sectors; foster economic growth and enhance the competitiveness of MSMEs. Hence, the average each month is $833,333.33 gross sale or revenue threshold for persons before engaging in a taxable activity, which then would qualify and then as a registered taxpayer.

So, what’s a taxable activity?

A taxable activity is an activity carried out continuously or regularly by a business, trade, manufacturer, professional, association or club. It includes any activity that supplies, or intends to supply, goods and services to someone else for a consideration (money, compensation, reward) but not necessarily for profit. We refer to these goods and services as “taxable supplies”.

What does this mean for me?

Once an individual or business passes the GCT threshold level at which a person undertaking a taxable activity is required to register for General Consumption Tax (GCT). As a GCT registered taxpayer, a person becomes liable to account for GCT on all taxable supplies made, file monthly GCT Returns and comply with all aspects of the GCT Act.

Micro and small business sectors that had to comply with the GCT laws will no longer feel the burden and administrative cost of doing so. With this, it also impacts the Income Tax as persons will be able to recover more losses thereby reducing their statutory income or business income tax.

With more than a 300 percent increase in the GCT threshold small business operators may need to conduct a cost-benefit analysis of the merits and demerits of GCT registration as benefits may outweigh the administrative cost of compliance for some business operators.

As a non-registered taxpayer, you are not eligible to claim GCT input credits or refunds and will have to recover GCT incurred on expenses by increasing their selling price or alternatively absorbing the cost. 

Obligations of persons in a taxable activity with gross annual supplies <$10M but ≥ $3M as at April 1, 2020

(a) If the person is currently a registered taxpayer there will no longer be an obligation to charge the tax, collect the tax and file a monthly GCT Return; and

(b) If the person is not yet a registered taxpayer, there will not be an obligation to apply for GCT registration. 

GCT Explained

The General Consumption Tax (GCT) is a Value Added Tax on consumption and is added to the price of goods and services supplied. The standard rate of GCT (on most items) in Jamaica is 16.5 (%) as of June 2012. It is a tax on consumption and is included in the final price the consumer pays for goods and services whether imported or bought locally.

Who accounts for GCT?

Whereas all consumers pay GCT upon purchase of taxable goods and services, the remittance of GCT to the government is required only of registered taxpayers. All persons engaged in a taxable activity are required to apply for registration under the GCT Act and remit tax due to the Inland Revenue Department. Other services are supplied where receive, and if it used by a business, the recipient would need to charge himself GCT on the service and reclaim it in his GCT return. This is generally referred to as reversed charges. They do this as if they are the supplier of the service, and are treated as importing the service.

The overseas supplier cannot charge and account for GCT on these services, as they take place outside Jamaica and are outside the scope of GCT, for example, Netflix, whether you watch from your phone, tablet or smart TV. The service is transmitted by some means, perhaps fiber-optic cable or satellite, and the provider is supplying a product, namely transmission signals.

It must be recognized that these services can be made to businesses that are not registered for GCT and are not required to register even though they are in a trade. However, once the service is considered imported, it matters not whether the business person is registered for GCT. They must charge GCT on themselves, once it is clear they receive the service for the purpose of the business.

Where the service from overseas is made to an individual, who is not in business, there is no GCT as the overseas supplier is not able to charge GCT. However, where the service ends at a certain point to the Jamaican gateway and must eventually be taken to the customer by a local supplier – for example, a telephone call coming from overseas – the local supplier will then be required to charge GCT on these service on the final transmission to the customer.

What are the benefits of being a registered taxpayer?

 When a person registers as a taxpayer he will enjoy the following benefits under the GCT act:

  • Input Tax Credit – He will be able to claim a credit for GCT paid on his business purchases (Input Tax), whenever he supplies taxable goods or services.
  • GCT credits for Customers – Only registered taxpayers can issue tax invoices to customers who are also registered taxpayers so that these customers will be able to claim an Input Tax Credit for purchases made

What’s Advanced GCT?

The Advance GCT Payment of 5% which was generally imposed on imports by commercial importers engaged in a taxable activity. The additional 5 is payable in excess of the standard rate of 16.5%, which 21.5% payable upfront. This presents a prepayment of the payable GCT portion on import goods at point of sale in the local market. Goods qualifying for an exemption from customs duties under the Productive Inputs Relief (PIR) regime should not be subject to the 5% Advance GCT upon importation. This rate is reflected in the Import Entry (C87). The advanced GCT is not passed unto consumers as the GCT Legislation makes provision for its recovery as input tax when the importer files his GCT return.

  • GCT Refund

A registered taxpayer is authorized to claim the on his GCT returns provided He will be able to claim a credit for GCT paid on his business purchases (Input Tax), whenever he supplies taxable goods or services. The taxpayer may request a refund to be paid directly to him or he can indicate that the excess credit should remain to pay future liability.

GCT overpaid is refundable from the date the taxpayer claims the refund and no interest shall accrue on same where TAJ pays the refund within three months of its due date. In respect of any taxable period that a registered taxpayer has paid tax in excess of what he is chargeable, he shall still be entitled to a refund of the excess.

Reduced Time Limit for Claiming Refunds

Generally, a registered taxpayer may claim a refund within six years of the taxable period to which it relates. Where the applicant has ceased to be a registered taxpayer or his GCT registration certificate has been canceled, however, the time frame within which the application must be made in two years of the date the applicant ceases to be a registered taxpayer.

Payment of Interest on Refunds

Where any refund is not made within a time period (prescribed by the Minister) after a refund claim has been made, interest at a rate of 1.5% percent per month or part thereof arising after this prescribed time period shall be payable to the taxpayer. If the taxpayer may claim the refund immediately, no interest accrues until three months have elapsed after the claim is made.

Tax Administration Jamaica (TAJ) is to begin paying Income Tax refunds directly into bank accounts, instead of making payments by cheque. The TAJ says an Electronic Funds Transfer (EFT) Project is now being piloted to accommodate this change. Beginning August 2014, individuals claiming a PAYE Income Tax refund, including pensioners, will be required to submit their banking details in order to receive their refunds electronically.

  • How can I get the Employment Tax Credit (ETC)?

The Employment Tax Credit (ETC) is an income tax credit that is allowed to an eligible person.

This provides unregulated companies and self-employed companies, a tax credit amounting to a maximum of 30% of the accumulated employers’ portion of the statutory deductions for both new and existing employees. The ETC is calculated within the year that the company’s tax liability is assessed and is specific to the statutory deductions had been filed, paid on time and in full, on a monthly basis.

Hence, when the full 30% ETC is applied, the self-employed and company’s effective corporate income tax rate will amount to 17.5%, as opposed to the default headline tax rate of 25%.

However, regulated companies, as well as companies that are either benefiting under than one of the Legacy Incentives or under one of the other retained legislated incentives are not eligible for the ETC.

The ETC regime is designed to benefit tax-compliant employers. Employers who comply with their obligations will preserve and maintain their employees’ benefits under important national programs such as are:

  • Education Tax (EdTax) Contributions
  • National Housing Trust (NHT) Contributions
  • National Insurance Scheme (NIS) Contributions
  • Human Employment And Resource Training (HEART) Contributions

Pay-As-You-Earn (PAYE) income tax is not eligible for credit.

The benefit of ETC cannot be applied to non-trading income, e.g. dividends, nor is it refundable and it cannot be carried forward (or back). 

Where a company makes a distribution (dividends and certain other benefits to shareholders), the credit is clawed back by TAJ to the extent of 10% of the distribution, less the tax payable by the recipient of the distribution (i.e. the ETC claw back only applies where tax imposed on the recipient of the distribution is less than 10%). The credit clawed back must be repaid to TAJ within 14 days of the end of the month in which the distribution is made.

Companies that operate under the grandfathered Legacy Incentives or any of the four (4) incentives legislation that was not repealed are not eligible for the ETC.

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