PIOJ Growth-Inducement Strategy - Planning Institute of Jamaica

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is too expensive and this reduces competitive pressures within the traditional banking system and between banking and capital market institutions. The GOJ’s medium-term economic policy framework also embodies a commitment to financial sector reform to reduce financial sector vulnerabilities and strengthen financial sector supervision. Within the securities markets, an important source of vulnerability is the lack of diversification in financial products offered to investors and the need for securities dealers to realign their business models to reduce reliance on mainly short-term repurchase agreements (“repos”) to finance their inventories of medium to long term assets. The Financial Services Commission has signalled that the re-invigoration of Collective Investment Schemes (CIS) is an important element for reducing systemic risks in the securities market. In particular, the FSC is introducing reforms aimed at strengthening the regulatory framework for CIS and importantly, allow for the establishment of a broader array on local CIS, including local mutual funds and hedge funds. 56 Current unit trusts are tax-advantaged compared with local mutual funds in a number of ways, including the fact that: investors in local mutual funds would be subject to ‘multiple” taxation of income, first on the investment income earned by mutual funds and then on redemption of shares in the fund. Investment income earned by unit trust is exempt from income taxes the transfer of shares/ownership in unit trusts is not subject to transfer tax, while mutual fund shares would not currently enjoy similar treatment. Meaningful CIS reform cannot proceed without equalization of the tax treatment of different types of CIS vehicles. In light of the above considerations, we recommend the following measures: 4.0 Recommendations 1. Remove the stamp duty on corporate debt securities (including demand promissory notes, bonds and debentures). 2. Remove the transfer tax on the trading of debt securities, if indeed it is determined that the transfer tax is chargeable on these transactions. 3. Harmonize the tax treatment of unit trusts vis-a-vis other collective investment schemes (mutual funds) and, in the context of this particular paper, we recommend exempting the transfer of mutual fund shares from the property transfer tax. 56 The current mutual fund regulations allow for the establishment of local mutual funds. However, due to serious inconsistencies between the securities regulations and the Companies Act as well as the unequal tax treatment of mutual funds, it is economically unfeasible to establish and operate a local mutual fund. There are currently no local mutual in operation. CIS reform is also intended to address these structural impediments. 153
5.0 Expected Outcomes These measures are expected to provide strong incentives for: a revitalization of the market for corporate debt increased competition for loanable funds further reductions in the cost of capital for financing productive activity. There are likely to be revenue losses which, from a programmatic perspective, would need to be accurately quantified and included in the GOJ’s macroeconomic programme. However, in light of existing knowledge, we conjecture that, while total revenues from stamp duty and property transfer taxes combined have, typically, been estimated to account for 3% - 5% of total revenues, the bulk of these revenues is likely to arise from transactions in real assets (land). That is, given the low level of activity in corporate debt markets, it is unlikely that such transactions provide significant revenue yields for stamp duty and property taxes. 57 Previous studies have suggested that the negative revenue effects of reducing stamp duty and property taxes may be offset by the suitable application of a capital gains tax. We do not recommend compensatory changes in capital gains taxes, and for the following simple reason. Capital gains taxation reduces the after-tax returns to investors holding the financial instrument being taxed. In addition, the international experience strongly suggests that additional revenue yields from increased capital gains taxation are low, while administrative costs are high relative to other types of taxes, not least because of the difficulties involved in measuring capital gains for tax purposes. 57 The revenue loss from harmonizing the tax treatment of unit trust and mutual fund shares is even more debatable given that, currently, there are no local mutual funds in operation. 154
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i A GROWTH-INDUCEMENT STRATEGY FOR
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To the many ordinary Jamaicans who
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Preface The Jamaican economy has ex
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for making a determined start on th
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the private sector groups, listed b
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Citibank N.A. Jamaica Branch Grace
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need for “additional fiscal space
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Chapter 2 ________________ Summary
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1.0 The Economic Situation Today 1.
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expected to provide an essential an
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Table 2.1. The Policy Framework: A
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programme of social inclusion that
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Strategic Focus Table 2.2. Growth S
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6.0 Short-Term Growth Stimulus 6.1
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decline of 2.0 - 2.2 percentage poi
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Table 2A.2. NWA Projects To be Fast
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Table 2A.5. Community Renewal Proje
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Table 2B.3. Impact of Repairing Far
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Appendix 2C Methodology of the Grow
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Part I _________ Overview 28
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2.0 Vision 2030 Jamaica Before delv
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3.0 May 2010 Security Event and Aft
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the longer than anticipated global
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April July October January April Ju
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Three industries recorded increases
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9.0 Proposals for Growth-Stimulus I
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targeted economic and social infras
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partnering with government to disco
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3.0 Growth Inducement Strategy The
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Growth-Inducement Strategy Alignmen
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50 Part II _________ Situational An
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inadequate provision of public infr
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2.0 Macroeconomic Assessment 2.1 In
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Increased global oil consumption wa
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$4,742.0 million and $688.4 million
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Non -Traditional Domestic Exports E
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negative impact of the Jamaica Debt
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ethanol and paint, whereas lower de
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Analysis of preliminary GCT data re
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The number of ship calls to the isl
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industry was, however, estimated to
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4.0 Projected Performance 4.1 Calen
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increased marketing and extension s
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Electricity & Water For FY 2010/11,
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J$ Million Figure 5.1. Private Sect
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2011/12). These extreme weather eve
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Chapter 6 ________________ Assessme
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creates allocative inefficiencies,
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Million $ Per cent Jun-10 Mar-10 De
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Table 6.1. Employed Labour Force by
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J$ million Mar-10 Dec-09 Sep-09 Jun
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FIGURE 7: GROSS NATIONAL SAVINGS RA
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4.10.2. However, the extent of the
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Part III ____________ Analytical Fr
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functional relationship between the
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It follows that: (5) s = I/Y = [S -
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Page 115 and 116: (d) v* = Y*/K* This is a measure of
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Page 119 and 120: Transforming the complex set of str
Page 121 and 122: Appendix 7A A Methodological Note T
Page 123 and 124: Chapter 8 ____________________ Asse
Page 125 and 126: The DBI focuses more narrowly on qu
Page 127 and 128: to ask, is it possible to predict g
Page 129 and 130: can be made to serve a very useful
Page 131 and 132: For further elaboration of the cons
Page 133 and 134: progressive Jamaica-based firms and
Page 135 and 136: Table 8.2. Jamaica: Doing Business,
Page 137 and 138: Table 8.4. Global Competitiveness I
Page 139 and 140: Table 8.5 (continued) Rank Indicato
Page 141 and 142: Rank* Constraint Table 8.7 Business
Page 143 and 144: Chapter 9 ___________________ Inter
Page 145 and 146: 3.0 The Burdens of LAC’s Logistic
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Page 149 and 150: Figure 9.4. Proportion of Primary A
Page 151 and 152: 6.0 Logistics are Essential for Tou
Page 153 and 154: 7.0 Fundamental Steps Forward for J
Page 155 and 156: Part IV ________________ Policies a
Page 157 and 158: Current Status: Cabinet by decision
Page 159 and 160: e more than compensated for by the
Page 161 and 162: B ____________________ Eliminating
Page 163: Commercial Bank loan rates have als
Page 167 and 168: capital, mainly in the form of equi
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Page 171 and 172: Table C.1. Proposed Implementation
Page 173 and 174: Locally, the Scientific Research Co
Page 175 and 176: Develop formal and informal links t
Page 177 and 178: D ____________________ Business Pro
Page 179 and 180: 5.0 Recommendations Based on the ma
Page 181 and 182: 2.5 Coexistent with the levels of u
Page 183 and 184: industry as well as provide funding
Page 185 and 186: Table E.2. Unemployed Labour Force
Page 187 and 188: indirect losses experienced when th
Page 189 and 190: Table F.1 (continued) Area Type of
Page 191 and 192: G ____________________ Community Re
Page 193 and 194: Figure G.1 Community Renewal Progra
Page 195 and 196: Table G.1 Priority Initiatives Obje
Page 197 and 198: Table G.2 Phased Implementation Pla
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Page 201 and 202: 3.0 Transparency Guarantees By desi
Page 203 and 204: and Coordinating Unit (PCMU) was es
Page 205 and 206: therefore need to have sanctioned o
Page 207 and 208: Figure I.1. Functions of National P
Page 209 and 210: The rationalisation was guided by t
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Part V _______________ Panelists’
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With the benefit of hindsight, some
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ight. Where we as a society fail is
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and exclusion of the majority of th
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the elders, youth, children. What f
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C __________________ Enhancing Nati
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Figure C.1. National resilience is
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PIOJ Growth-Inducement Strategy - Planning Institute of Jamaica

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