Keith Collister, ContributorMY INTERVIEW with Superclub's Chairman Mr. John Issa, published in last week's Financial Gleaner, appears to have sparked a healthy debate on the issue of the appropriate taxation regime for the tourism industry, and, in particular, whether tourism should be treated as an export industry.
In my view, tourism is clearly an export of services, albeit consumed locally, so the issue is actually what is the appropriate tax regime for exports, and is there any reason why tourism should be treated differently from other export industries?
AGAINST INCENTIVES
In the context of the recent debate, it is worth repeating Mr. Issa's central point that he is actually against incentives :
"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."
In a letter in last Friday's Observer, Mr. Issa additionally points out that existing foreign manufacturing businesses appar-ently need significant incentives to attract investment :
"For example, Red Stripe was given substantial tax incentives to encourage them to invest in expansion, while the Cement Company had to be given monopoly status by way of protectionist import duties."
Mr. Issa therefore does not appear to be arguing for special treatment for the tourism sector, but apparently believes instead that Jamaica should reorientate its economic structure towards the productive, export industries, and away from domestically-orientated trading and financial services. This is actually not a new view of his, but one that he has held for well over thirty years, even before his heavy involvement in the tourism industry.
IS A LOW CORPORATE TAX RATE BETTER THAN INCENTIVES?
This is a question that Jamaica needs to consider carefully, as tax policy is one of the few areas over which we have the ability to control our own competitiveness. For example, even if the Spanish hotels did not get any special incentives to invest in Jamaica, the incentives available for our much older domestic tourism industry will be largely exhausted, putting the local operators at a disadvantage relative to their foreign competition as their effective tax rate is now likely to be much higher.
As it is unlikely that the Government really wants foreign investors to do better than local entrepreneurs, a better strategy might have the same corporate tax rate for both foreign - sufficiently low to attract foreign investment - and local hoteliers, rather than the current policy of incentives that mainly appear to tilt the playing field against local entrepreneurs relative to their foreign counterparts.
Of course, it is Mr. Issa's view that all export and productive industries should be treated equally favourably, a policy that he regards as crucial to achieving export-led growth.
He additionally holds the strong view that "for too long now the PAYE earner has been carrying too large a share of the tax burden", an opinion he first expressed publicly in 1973, and that if the "job of collecting the taxes properly due from companies and other persons rather than the PAYE workers, the tax rate could be reduced to 15 per cent".
It is worth noting that even this low rate is above the 12.5 per cent corporate tax rate that the super successful Irish economy decided was the highest it could impose and still attract foreign investment.
