Keith Collister, Contributor
ISSA
Q: WHAT IS the Current State of the Tourism Industry?
Issa: The tourism industry in Jamaica has been flat to declining since spring of this year. There are signs of growth from November onwards however, principally due to the unfortunate events in Cancun. However, the long term growth in arrivals is not keeping pace with the expansion of the accommodation sector, and cruise arrivals are flat to very soft. In addition, when looking at comparisons for September and October, we have to remember that last year we had Ivan. The tourism boards budget is inadequate to deal with the effect of market conditions abroad and social conditions in Jamaica on the industry.
Q What do you think of incentives?
Issa: I am against incentives. However, if tourism is going to be the main engine of growth and employment for the economy, the economy needs to be so organised that the industry can attract investment and be profitable without the need for incentives.
The reasons why incentives are necessary is because the economy is structured, regulated and administered in a manner which makes it more attractive to invest in trading and financial services and the illegal underground economy, none of which could survive and prosper without the existence of tourism, agriculture, mining and manufacturing.
Why do these critical industries, the foundations of our economy, need special incentives for them to be viable and attract the nation's capital? Only because of the wrong structural design of our taxation and regulation systems. Unfortunately, my belief is that this will never change because Jamaica is the country of the 'blye'. In many cases, people prefer to be officially disadvantaged and to be given a 'let off' rather than have a set of regulations that all adhere to or are punished.
Since the country operates in this manner, it is, therefore, necessary to incentivise export industries such as tourism, and not tax them on revenue (in fact tourism is the only export industry that is taxed on revenue).
Q Why is tourism a unique export industry?
Issa: Tourism is the only export industry the selling price of which is adversely affected by the deterioration of the social and physical environment. The murder rate could double and our towns could get even more ramshackle, yet we would still export our bauxite and alumina, banana and sugar, rum, citrus and jerk seasoning in the world markets at the same price.
This, however, is not true of the tourism product. In fact, the opposite is true, where we find ourselves in Jamaica having to sell five star tourism products for three star prices.
Q Why are tax revenues underperforming?
Issa:Underlying all this is the fact that all those who pay taxes in Jamaica are overtaxed. It is widely accepted that approximately half of the taxes due are not collected. In fact, the PIOJ says 45 per cent of the economy is informal.
I think we have reached the point where this situation has to be reversed. The recent statistics show that GCT collections are running 15-16 per cent behind target since rates were raised by 10 per cent to 16.5 per cent. This is a classic example of the economic principle of something having reached the point of diminishing returns. The just, effective and practical way of financing the central services of a society has proven to be a tax system with low rates fairly and universally applied. This, like many good and accepted practices appears to be eluding us in Jamaica.
Q How do the specific incentives in the tourism industry work?
Issa:The Hotel Incentives Act gives tax rebates on certain items needed for the construction of a hotel, and tax holidays for periods of 10-15 years. While many people assume the tourism industry isn't taxed, most of the existing tourism plant in Jamaica is no longer covered by incentives. Additionally, most of the supplies used by hotels even during the incentive period is subject to the normal taxes and duties. In addition, there is GCT paid on the revenue of the hotel.
It is critical to remember that the selling price of the tourism product is determined by the international marketplace. Therefore, GCT on tourism cannot be looked at as something that is all paid for by the customer. This is unlike the domestic market, where the customer has no option but to buy the product where they live. As Jamaica has not reached our potential to become a unique destination commanding higher prices, the consequence is our inability to pass GCT on to the final customer. Margins in the sector are lower than last year, which is lower than the year before. In fact, since September 11, margins have been falling pretty continuously.
Q How much of tourism revenue is typically paid out as tax?
Issa:According to a follow-on conversation with SuperClubs finance department, an exercise SuperClubs did some time ago showed that about 25 per cent of revenue was paid out as tax. This included income tax paid by employees and income tax on notional profit. If one excluded the latter items it would range between around 10-15 per cent.
This, of course, is only direct tax. It does not include the multiplier effect of all the taxes generated from additional economic activity created by tourism, whether it is employee expenditure or taxes paid by suppliers, etc.
John Issa is chairman of the SuperClubs chain of super inclusive resorts.
