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PWC, JCC support removal of Customs Administrative Fee (CAF) on small exports

The Jamaica Chamber of Commerce (JCC) and the local arm of global tax and consulting firm, PricewaterhouseCoopers (PWC), have given their full support to the recent move by the Government to discontinue the imposition of a Customs Administration Fee (CAF) on export declarations with an export value less than US$500.

The effective date of the discontinuation is April 1, 2021. However, the CAF will continue for exports above US$500. Historically, a CAF of J$3,000 has been imposed on each export declaration filed with the Jamaica Customs Agency.

JCC President Lloyd Distant Jr welcomed the announcement last week by Finance Minister Dr Nigel Clarke about the discontinuation of the CAF on small exports, saying that the chamber has been calling for this for many years. He made the point that the imposition of the CAF has been a real disincentive for small businesses.

Speaking last Wednesday at a post-budget analysis forum put on by Victoria Mutual Building Society and its wealth management subsidiary, VM Wealth Management and the JCC, Distant also welcomed the incentives announced by the finance minister in opening the 2021/2022 budget debate in Parliament last week, but admitted that more could have been done to spur economic growth in the country.

“We believe that the budget could have been bolder, notwithstanding the fact that a number of the initiatives announced are things that the JCC has been calling for a decade. We do believe that there are other incentives, regimes other items that could have been implemented that would have made this budget more fitting to the business community,” the JCC president argued.

He suggested that the Government could have further delayed its target date for achieving a balance budget by borrowing money in the current budget to be used to jump-start the economy, rather than the preoccupation of achieving a balanced budget.

PWC ASSESSMENT OF THE DISCONTINUATION OF CAF

In its assessment, PWC Jamaica says, “this CAF on export declarations has been a significant deterrent for micro, small and medium enterprises (MSMEs) exporting small value items in low volume. In some cases, the CAF can cost nearly as much as the item being exported. Of the 43,000 declarations noted by the (finance) minister, 11,000 were for export values below US$50.”

In these circumstances, PWC Jamaica argued that MSMEs are often forced to absorb the CAF charged unless they can pass it on to the purchaser of the goods (which in turn may make the price uncompetitive). “We welcome the introduction of the de minimis value of US$500 on exports, which will allow small businesses to be more competitive, particularly when trading on online shopping platforms,” PWC Jamaica declared.

GOVERNMENT’S REASON DISCONTINUATION

Minister Clarke noted that of 43,000 export declarations filed, 73 per cent related to export by air freight but represented only six per cent of exports by value whereas 27 per cent of the declarations (sea freight) represented 94 per cent of export value.

As a result, the Dr Clarke announced that CAF shall no longer be levied with effect from April 1, 2021 on export declarations with an export value less than US$500. Export declarations for exports valued at more than US$500 will continue to attract the CAF.

This measure is expected to result in a loss of tax revenue of J$70 million for 2021/22. Turning to its overall assessment of the 2021/2022 budget, PWC contended that it is welcomed that “the minister appears to have found sufficient fiscal space for 2021/22 to avoid having to find additional taxes to fund the national budget, notwithstanding the significant fiscal downturn.”

However, the auditing and consulting firm stated that “given that this inflow is expected to be a one-off, the Government will therefore need to find replacement revenues next year and this will depend on the ability of our economy to rebound in 2022/23. This in turn will depend on how quickly Jamaica can get the pandemic under control, secure sufficient vaccines and distribute same and be ready to participate in the anticipated rebound in the global economy in due course.”

The firm argued that if the Andrew Holness Administration is unable to do this, supplemental budgets could be required later in the year.