PIOJ Growth-Inducement Strategy - Planning Institute of Jamaica

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Eliminating Transfer Tax and Stamp Duty
on Selected Financial Instruments 47
1.0 Background
Recent studies of Jamaica’s tax system have clearly and consistently noted the negative
effects of stamp duty and property transfer taxes in reducing the efficiency of the tax
system, in the sense of distorting economic decision-making in undesirable ways. 48 In
the case of land, the stamp duty and property tax is argued to introduce unproductive
“lock-in” or “avoidance effects”. That is, these taxes encourage the holding of property,
or alternatively, where the property is transferred, the transfer is done in a manner to
avoid the taxes (e.g. under-declaration of market value, aggressive appeal for
discretionary tax relief). Estimates suggest that about 7% of the registered transactions
are challenged by the tax authorities on suspicion of misreporting by transactors, while it
has been noted that tax waiver requests are often granted. There are also “nuisance costs”
associated with delays in the process of administering the taxes.
In the case of debt and equity securities (to the extent that such securities are within the
tax base outlined in the relevant statutes), stamp and property transfer taxes increase the
transactions cost of securities issuance and trading. Among other things, this increases
the cost of capital market financing relative to bank financing. Therefore, stamp duties
and property transfer taxes, at the margin, discourage trading in the secondary markets
for commercial paper and other corporate debt. 49 This is an important consideration in
the context of a financial market in which policies to reduce the cost of capital for
productive activity have been frustrated by: (a) an inertial reliance on bank financing for
investment projects, and (2) high bank interest rate spreads, both of which have operated
to keep non-prime lending rates relatively high.
The studies cited previously made specific recommendations for reducing the burden of
stamp duty and property transfer taxes but these recommendations have, at best, been
only partially implemented. 50 However, current conditions (for example, the downward
shift of the domestic interest rate structure in the aftermath of the Jamaica Debt
47 In consultation with the Policy Logistics Unit, PIOJ.
48 These studies include: The Final Report of the Tax Policy Review Committee (The Matalon Committee),
2004; Roy Bahl and Sally Wallace Tax Reform and Economic Development: The Jamaican Case (Planning
Institute of Jamaica, 2007), which was based on the detailed project reports underpinning the 2004 report of
the Matalon Committee; and Vito Tanzi Tax Reform for Stability and Growth in Jamaica (Dialogue for
Development Lecture 2007: Planning Institute of Jamaica, 2007); A Blueprint for Taxation Reform in
Jamaica (The National Summit for Tax Reform Team, July 2009).
49 Bahl and Wallace, op. cit, p. 109.
50 The most notable progress toward implementation has been the reduction in 2009 of the property transfer
tax ad valorem rate from 7.5% to 4%.
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