THE LOCAL inbond sector is woefully overtaxed, putting duty-free merchants at a major disadvantage when competing with other Caribbean interests, a KPMG study has shown.
According to the report, commissioned by the Duty-free Merchants' Association of Jamaica to "paint an accurate picture of the state of the inbond sector", the tourism industry would be better served if merchants were given a meaningful tax break - something on par with their Caribbean neighbours.
Currently, duty-free merchants in other Caribbean islands pay anywhere between zero and five per cent inbond tax, making Jamaica's taxation the highest in the region. Inbond merchants in Jamaica are taxed eight per cent.
And responding to the charge that duty-free merchants oftentimes violate their inbond licences by selling to locals, the KPMG study said that not only are the numbers "miniscule," but recommended that a tax system should be so reasonably structured that merchants would freely be able to sell duty-free items to Jamaican consumers.
INCREASE
Finance and Planning Minister Dr. Omar Davies, during the 2003 budget debate, had announced a nine per cent increase from six per cent to 15 per cent on items classified as duty-free. The news was immediately greeted with anger by the inbond sector, with merchants declaring that the tax increase would impede their ability to compete with other islands. A meeting was then sought with the Finance Ministry where a delegation was sent to argue their case. After a series of meetings, the merchants were then given a reprieve -their taxes reduced to eight per cent, representing only a two per cent increase.
But to some critics, it also represented an about face on the part of the Minister who when imposing the stamp duty had noted that, "Tax revenues from inbond merchants have been minuscule. No indirect tax, apart from a six per cent additional stamp duty is levied on goods imported for the trade... it has been that way for a while."
They accused the Minister of flip-flopping, charging that he had given duty-free merchants 'a free pass' while ignoring the pleas for a tax break from other sectors.
Smarting from the criticism, merchants immediately went about commissioning the study on the grounds that "let the chips fall where they may."
UNFAIR
"We have always felt that the criticisms were unfair," explained Indru Dadlani, duty-free merchant and owner of the Casa de Oro chain of inbond shops. "We are in direct competition with other destinations and it is all about our ability to compete. If we are taxed too harshly then there is no way we would be able to price our goods to effectively compete with the other islands."
Kumar Sujanani, owner of the Gem Palace chain of duty-free stores, agreed. "The KPMG study was commissioned to pretty much set the record straight," he said.
"There has been a lot of charges made against the duty-free sector which are simply not true. We felt that instead of us responding to them, we would let a reputable organisation with no allegiance to anybody explore the facts."
Ravi Daswani, owner of the Royal Shop duty-free chain, said heavy taxation as well as merchants' inability to effectively compete with the other islands have been taking a toll on the inbond sector. "If we are forced to close our doors, do you have any idea how many people could be out of work," he said. "The duty-free sector is an integral part of tourism... it is important that the sector remains viable."
