'Death knell' - Tax reform threatens junior stock market

BY PAUL RODGERS Business Editor rodgersp@jamaicaobserver.com

Wednesday, February 22, 2012

THE junior market of the Jamaica Stock Exchange (JSE) will be devastated if proposed new tax rules are adopted, securities dealers said yesterday.

"It's the death knell for the market," said Gary Peart, president of the Jamaica Securities Dealers Association (JSDA) and CEO of Mayberry Investments.

The proposals submitted to Parliament by the Private Sector Working Group on Tax Reform last week call for an end to the 50 per cent cut in corporate income tax enjoyed by companies during their second five years as listed entities.

The 100 per cent incentive in the first five years would be maintained under the proposals, which the working group wants adopted as a single suite without exceptions.

However, the value of that concession will fall sharply due to the proposed lowering of corporate income tax from a third of pre-tax profits to just 15 per cent, he said. "Just the mere fact of reducing income tax is impacting the market."

Peart said his organisation, which refused to sign the working group's proposals, would make a separate submission to the Parliamentary committee on tax reform calling for the incentive to be continued.

The JSE plans to send a paper to the Minister of Finance, Dr Peter Phillips, and will meet with him on 14 March.

"There is a need to encourage small and medium-sized companies to list," said Marlene Street-Forrest, the exchange's general manager.

Because the tax saved by listed companies is ploughed back into the businesses, the Government recoups its money through increased GCT in the short term and higher corporate tax revenues in the long run.

"It would be a direct way of improving the Government's tax collection," Street-Forrest said.

The market also requires that companies get their books in order, promotes transparency, encourages good corporate governance, and provides equity for expansion, thus creating jobs.

At a Mayberry investment forum last week, Lascelles Chin, whose Lasco Group has become the poster child of the junior exchange, told Anthony Hylton, the Industry Minister, that he could not have committed to investing $2.1 billion in a new factory in White Marl, St Catherine, if he had not first listed on the junior exchange.

The three companies in Lasco floated with a combined value of $2.2 billion in October 2010 and are now worth $9.6 billion.

Despite the importance of tax reform to the market, Street-Forrest said on Monday that the JSE had not been properly consulted and was not invited to sign off on the document.

Representatives of the stock exchange did meet with Joseph Matalon, the president of the Private Sector Organisation of Jamaica and chairman of the working group, but were not allowed to speak directly to the working group itself, she said. Instead, they were told that the views of the market would be represented by the JSDA.

"Nothing was communicated to the exchange," she said. "Today as we speak we have not seen the final document."

The JSE has eight or nine companies interested in listing on the junior exchange but the proposals are making even those that have already floated "queasy", she said.

However Metry Seaga, a member of the working group, said he still intends to bring his company, JFP (formerly Jamaica Fibreglass Products), to the junior market.

"I'm certainly not deterred," he said. "It's not only the tax free incentive that companies are looking at going on the stock exchange for."

The working group has sceduled a press conference on its proposals for tomorrow.

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'Death knell' - Tax reform threatens junior stock market