TAXATION THEORY AND

PRACTICE

UNIT 2: JAMAICA TAXATION

COURSE CODE : ACT 205
LECTURE NUMBER 2
LEARNING OUTCOMES
At the end of this unit, you will be able to:

1. Give an overview of the history of taxation in

Jamaica.

2. Identify the types of taxes in Jamaica.

3. Explain the purposes of the types of taxes in

Jamaica.

4. Discuss the advantages and disadvantages of

taxation.
The History of Jamaican Taxation

Colonial Era of Taxation (1919)

Pre-reform (Before 1985)

Post-reform (1985-1987)
The History of Jamaican Taxation
Colonial Era of Taxation (1919)

 The Income Tax Act of 1919.

 An amendment to the Income Tax Act in 1939.

 The Income Tax (Employment) Act of 1952.

 The Income Tax (Amendment) Act of 1954

legislation.
The History of Jamaican Taxation
Pre Reform (Before1985)

Individual income tax included two

separate rate structures.

There were 16 allowable income tax

credits.

There were five different payroll taxes

levied on four different bases.
The History of Jamaican Taxation
Pre Reform (Before1985)

National Insurance Act (NIS), 1965

National Housing Trust Act (NHT) 1979

Human Employment & Resource Training

Act, 1982

Education Act, 1983

The History of Jamaican Taxation
Post Reform (1985 - 1987)

The Revenue Administration Act of

1985 abolished the Collector General’s
Department

Establishment of a flat rate of

**25%** for individuals and 33.3% for
companies
 **Effective July 2016 25% rate up to $6mil; 30% over $6m**
The History of Jamaican Taxation
Post Reform (1985 - 1987)

The introduction of Taxpayer

Registration Number (TRN)

The development of the Taxpayer Audit

and Assessment Department (TAAD)

The established the Tax Administration

Jamaica (TAJ)
Types of
Taxes
 National Insurance Scheme:
 Established in 1965 by the National Insurance Act.
 Administered by the Ministry of Labour and Social Security
 Contributors are employed persons, self-employed, voluntary
contributors and employers.
 Benefits:
 Pension
 Widow’s and widower’s benefit
 Orphan’s benefit
 Funeral grant

 Rates:
 3% up to a max of $3,000,000 ( Jan to Mar) & $5,000,000 (Apr to Dec)
 Employer 3%
 Self- Employed 6%
National Insurance Scheme:
Effective April 2022, The Insurable Wage Ceiling for the National
Insurance Scheme (NIS) contributions will be increased from
$3,000,000 to $5,000,000 per annum, the Maximum contribution
will be $270,000. The Contribution Ceiling Breakdown is as follows:
National Housing Trust Contribution:
 Established in 1975 by the National Housing Trust Act.

 Benefits to contributors are:

1. Housing benefits for qualified contributors
2. Refund of individual contributions after 7 years (i.e. in the 8th
year)
3. Cash grant on death, retirement or permanent incapacity

 The floor is the prevailing minimum wage, and there is no ceiling.

 Rate : 2% for employees / for employers it is 3%
 Self- Employed 3%

 N.B. Applied to total earnings before NIS and pension is deducted

 Education Tax:
 Established in 1983
Education Tax Act. by the
 Purpose is to advance
educational goals.
 Certain
exemptedemployers
from theare
employer’s portion. E.g. The
University of the West Indies.
 Rate : 2.25% for employees
for employers it is 3.5% /
 Self- Employed 2.25%
 N.B. Deducted
Pension is after
taken fromNIS and
gross
salary.
 HUMAN EMPLOYMENT & RESOURCE TRAINING
(HEART):

 Some of the objective of the HEART fund are to:

1. Develop, encourage, monitor and provide finance for training
scheme for employment of trainees.
2. Provide employment opportunities for trainees.
3. Assist in the placement of persons seeking employment in Jamaica.
4. Promote employment projects.

 HEART contributions are only paid by employers whose total gross

taxable monthly emoluments exceed $14,444 monthly.
 Rate : 0% for employees / for employers it is 3%
 Self- Employed 0%
 Income Tax (P.A.Y.E.):

 Based on the Income Tax Act.

 Tax-free threshold (0 %) - $1,500,096 per annum

 Rate of 25% up to $6,000,000 and 30% over $6,000,000

 Tax credit (allowances) - E.g. Pension

 Income Tax (P.A.Y.E.):
• The following exemptions apply in the circumstances outlined
below:

• Persons under 55 years old, who receive a pension from a Statutory

Pension Scheme e.g. NIS, or an Approved Superannuation Scheme,
are entitled to the tax exemption amount of $80,000.00 against
that Pension income only plus$1,500,096 income tax threshold,
totalling $1,580,096.00.

• Persons 55 years and over, who receive a Pension from a Statutory

Pension Scheme or an Approved Superannuation Scheme are
entitled to a tax exemption amount of $80,000.00 from that
pension income and any other source of income,
plus $1,500,096.00 –income tax threshold, totalling $1,580,096.00.

• Pensioners who are 65 years and over, are entitled to an exemption

of $80,000.00 for age relief & 80,000.00 pension relief, plus
$1,500,096.00 –income tax threshold, totalling $1,660,096.00.
 Income Tax (Self Employed):
 Individuals are taxed on gross revenue subject to the deduction
of allowable expenses. However, these expenses should be those
incurred wholly and exclusively to generate such revenue.

RATES BASIS OF
CALCULATION

NIS 6% Net Profit

NHT 3% Net Profit

ED TAX 2.25% Statutory Income

INCOME TAX 25% Taxable Income

 Corporation Tax
 Companies Income Tax

 With effect from 2013 the tax rates are:

• Regulated Companies** 33 1/3%
• Unregulated companies 25%
• Large unregulated companies* 30%
• Building Societies special rate 30%
• Life assurance Companies
 Investment income 20%
 Premium income 5.5%

 Some companies are exempt from paying income tax (E.g. National
Insurance Fund and NWC)

 *Companies that are not regulated but whose taxable income for
 Corporation Tax

Corporate Taxation – Regulated Companies

Companies that are regulated by:

1. the Financial Services Commission (FSC),
2. the Office of Utility Regulation (OUR),
3. the Bank of Jamaica (BOJ) or
4. the Ministry of Finance (MOF)
 General Consumption Tax
 Jamaica had a sales tax on luxury items since 1978

 The General Consumption Tax Act, 1991.

 This is a tax on sales paid by the consumer and collected

and remitted by the seller. It is a value-added tax where
tax is paid at successive stages and the cumulative tax is
borne by the final consumer.

 The tax affects the sale of both goods and services.

 Tax rate is 15%

Exceptions include:
• telephone services and instruments - 25%
• tourism services - 10%
 Other Types of Taxes:

• Trade Licenses

• Road Licenses

• Property Taxes

• Asset Taxes
Advantages
and
disadvantages
of Taxation
 Advantages of Taxation:
• Control inflation- Through increasing of various taxation
rate, taxation can be used as the means of controlling
inflation especially the demand pull inflation. Since raising
of taxation rate of various commodity results in decrease
purchasing power of persons hence being a solution to
demand pull inflation.

• Discourage use of harmful products- As there are many

harmful products which are produced in various country
but the manufacture of such products may be seen as a
good tax payer. The government may not decide to
shutdown such companies, instead will impose high tax
upon such commodity to discourage users from there
consumption, example cigarette and spirits.
 Advantages of Taxation:
• Revenue generation- Taxation also act as important
source for revenue generation. Even if the government
will have other source of income apart from taxation,
still the amount of revenue obtained from collection of
different types of tax is higher compared to the amount
obtained from other sources.

• Redistribution of income- Through taxation system

especially the progression tax system, taxation can be a
means of ensuring fair distribution of income between
individuals by imposing high tax rate for those who
earn more and less tax rate for individuals who has
lower income, this also can lead to reduction of income
gap between poor and rich people.
 Disadvantages of Taxation:
• Reduce purchasing power- Taxation
especially when the tax rate are high has the
tendency of reducing the disposable income of
an individual which subsequently reduce the
purchasing power.

• Discourage saving- Since taxation rate

reduce the disposable income of an individual,
this means an individual saving ability will be
reduced and can completely stopped them
from such habit hence preventing individual
from doing other economic activities.
 Disadvantages of Taxation:
• Discourage investment- Heavy tax rate on firm
profit become a disincentive for investor to
invest in particular sectors instead investors will
opt to invest in other sectors which their tax
rate is of reasonable value.

• Deterrent to Enterprise- Entrepreneurs are less

likely to set up business, if they think their
already risky undertaking will have its profits
reduced by high corporation tax or they may
set up in a different country.
Questions & Answers

THE END