Sabrina Gordon, Staff Reporter

WHILE ANALYSTS believe that the impact on the stock market will be minimal following the announcement of a withholding tax on dividend for non-residents, it is likely to trigger some negative outcomes.

"I do believe that the non-resident shareholders may take a negative outlook on buying stocks going forward as many of them invest in the local stock market, not only with the intention of making a long-term capital gain, but also, earn a good income stream from dividends," said Jason Dear, equity trading manager at First Global Financial Services Ltd.

"With the implementation of this new withholding tax, along with the other major concern with the devaluation of the Jamaican dollar and the state of the current market, this may just prompt overseas shareholders to either stop investing in Jamaican companies in the future, or cause them to pull out of our local market all together," the analyst said.

As part of a revenue-generating measure to fill the gap in the Budget, non-resident shareholders of listed companies will be required to pay a withholding tax on dividend come July 1.

Requires greater review

A 33 1/3 per cent withholding tax will be applied for companies, individual shareholders will be paying a tax rate equivalent to 25 per cent on dividend earned from their investments.

Already, the Jamaica Stock Exchange (JSE) has begun an in-depth assessment of the announced measure.

"It requires greater review and discussion on the matter ... looking at what impact, if any, on our market, as the continued thrust is the growth and development of the stock market," said Marlene Street-Forrest, general manager of the JSE.

But larger capitalised companies listed on the JSE, inclusive of NCB and the Scotia Bank Group, are likely to see significant impact.

"Scotia Group Jamaica, for example, if they were to pay out $2.00 during a fiscal year, that would be $5.618 billion, and now taxed at 33 1/3 per cent, would mean J$1.872 billion to the Ministry of Finance," said Mark Croskery, chief executive officer of Stocks and Securities Ltd.

At the same time though, Jamaica is a signatory to double-taxation treaties that usually prohibit, in each contracting state, tax treatment that discriminates against residents of the other contracting country.

"The effect will be minimal at best," said John Jackson, financial analyst, pointing out that Jamaica had signed a double-taxation treaty with Canada, which essentially would negate any effect on companies like Scotia Bank.

And on Friday, at its investor/press briefing, NCB chief, Patrick Hylton, also said that the impact on the company was nil.

NCB is majority owned by Michael Lee Chin through AIC Barbados Ltd and AIC Global holdings.

Jamaica is also a signatory to a CARICOM treaty on taxation, which places a zero per cent tax on dividend, all of which is being reviewed by the JSE.

Changes in dividend policy

As for changes in dividend policy by major companies, analysts say it was too early to tell.

"It is too early to say exactly what they will do, as each company may take a different approach to its dividend policy going forward," said Dear.

"Some may decide to pay greater amounts of profits in dividends in order to earn the same amount (after taxes) as they did in previous years, while some may decide to stop paying dividends or reduce the amount of dividend payments and instruct the companies to reinvest in other assets to grow the bottom line," he added.