Almost $50M Contractors Levy Dilemma

How a Mismatch Between Tax Law and Accounting Standards Is Quietly Undermining Jamaica’s Construction Boom

Jamaica is building

From towering apartment complexes to sprawling bypass roads, the construction industry is booming. The government’s 2025/26 budget earmarked approximately JMD 40 billion in construction projects from the Port Antonio Bypass to the first-ever STEAM Academy, and the Clarendon Justice Centre.

These are not just “buildings”; they are national commitments to progress, job creation, GDP growth, and investor confidence. With over JMD 1 trillion in planned public infrastructure over the next five years, Jamaica is undergoing an infrastructure renaissance.

For Jamaica’s contractors and subcontractors, this may be a once-in-a-generation opportunity.

But beneath the steel and scaffolding, there’s a silent sinkhole, one buried not in concrete, but in outdated tax law.

The Reality: A Flawed System Beneath the Surface

Under Jamaican tax law, when a contractor is paid for services rendered, 2% in contractors levy (the Levy) is withheld, and remitted directly to Tax Administration Jamaica (TAJ). Based on section 5 of the Contractors Levy Act, the Levy is not allowed as a deductible expense in arriving at income chargeable to income tax. It’s meant to be a prepayment of income tax, which the contractor can later claim as a tax credit.

According to section 25E of the Income Tax Act, there shall be allowed a tax credit equivalent to the amount of the Levy so paid, in respect of the year in which the payment was made.

At first glance, this sounds fair. The contractor gets paid, the government collects its share, and the tax credit offsets against the income tax.

But let’s pause and dig a little deeper.

What if the project spans multiple years?

What if the income hasn’t been earned yet?

The Hidden Mismatch

Under IFRS 15: Revenue from Contracts with Customers (the Standard), contractors must recognize revenue only when performance obligations are satisfied, either over time or at a point in time. This means the receipt of funds, which is the trigger for Levy payment, is not necessarily equal (≠) to income reported in the financial statements.

Here’s the problem:

·       The law says the Levy is only available as a tax credit in the year the payment is received by TAJ.

·       The Standard says income may only be recognized when the performance obligation is met.

·       If the income isn’t recognized in the year of payment and there’s insufficient tax liability, the excess Levy is lost forever.

There’s no carry forward, that is, there is no future tax credit. No refund. No deductible expense. In other words, no recourse.

In construction, some payments to contractors are made at the mobilization stage to cover material purchases and labour sourcing. These activities frequently occur in different years than when the work is sufficiently completed for revenue recognition. This timing difference often results in the Levy being deducted in one year, while the corresponding revenue is recognized in a later year.

This forces contractors in a situation where they:

·       Lose valid Levy permanently;

·       Pay income tax on revenue they’ve already been levied on; and

·       Face a double tax burden through no fault of their own.

The Case: How a Small Contractor Lost Big

This isn’t theoretical. It’s the reality of contractors operating in Jamaica.

One local contractor had almost  JMD 60 million withheld in contractors levy over two years. In 2024, he could only claim about JMD 10 million of tax credit against his income tax liability leaving an almost JMD 50 million dilemma. The remainder? Unusable, Forfeited, Gone.

Why?

In 2023, he reported a tax loss, partly due to deferred revenue recognition under IFRS 15 and other business dynamics. Under section 25E, the unused Levy could not be carried forward to offset the tax in a profitable future year. In essence, the contractor was unable to match the Levy deducted to the year in which the related revenue from the work done was actually recognized.

This Isn’t New. It’s Been Known Since 2011.

In 2011, the Honourable Audley Shaw, then Minister of Finance and the Public Service, tabled a Green Paper proposing various tax reforms, among its key recommendations: unused Levy to be carried forward for up to three years. That was 14 years ago!

In 2025, the law remains unchanged. The benefit of Levy suffered is still being lost by contractors in this way, which is an egregiously unfair tax burden.

Recommendations

The goal of the Contractors Levy is to ensure tax compliance in a sector prone to informality. However, its current administration is fundamentally misaligned with global accounting standards. The following are proposed amendments to our current legislation:

1.     Permit the Carry Forward of the unused Levy (3-5 Years)

Where a contractor is unable to utilize the Levy paid in a year, the unutilized portion should be carried forward and applied against income tax payable over the next 3–5 years.

2.     Introduce Partial Refundability

Currently, there’s no refund mechanism for unused Levy amounts, which results in permanent losses. A partial refund system should be introduced, allowing contractors to claim 50-75% of unused credits as refundable under certain conditions, such as:

·       The contractor incurred a tax loss due to the timing of revenue recognition; and

·       If the business is within its first 6 years of operation.

This approach acknowledges Levy overpayments as prepaid income tax and provides financial relief while still protecting the government’s tax base. Refunds should be subject to the submission of audited financial statements.

3.     Recognize Unused Levy as a Deductible Expense

Even with the proposed measures, there is currently no mechanism for recovering unused Levy - not even as a deductible expense, despite its direct link to revenue generation. A provision could be included to allow any portion of Levy paid that remains unutilized after three (3) years to be deducted as an allowable expense in the fourth year of assessment.

If excess Levy is neither credited nor refunded, it should be treated as an allowable expense in accordance with section 13(1) of the Income Tax Act: Deductions Allowed. This would reflect the economic substance of the payment: the cost was borne, even if tax timing rules rendered it unrecoverable as a tax credit under the current legislation.

Summary of Proposed Solutions

Issue	Proposed Solution
Credit expires in year of payment	Allow a 3-5 year period carry forward
No refund for unused Levy	Allow for conditional refund of up to 75%
Unutilized Levy is irrecoverable	Allow excess Levy to be deducted as an expense

These proposed solutions are not mutually exclusive; they can be implemented together to give both contractors and the government greater flexibility. Naturally, conditions would apply, and all claims should remain subject to proper documentation and oversight. Our professional tax and accounting team at Signature Creed & Associates stands ready to support the government in reviewing and revising the legislation where needed.

Conclusion

Jamaica is undergoing one of the most ambitious infrastructure expansions in its history. Yet under current tax law, compliant contractors are losing millions in unrecoverable Levy, simply for following international financial reporting standards.

The Contractors Levy was never meant to punish fairness or accuracy. Its purpose was to ensure tax compliance and contractors have complied. However, outdated provisions like section 25E of the Income Tax Act and section 5 of the Contractors Levy Act, now result in double taxation, diminished profits, and broken trust in the system.

We should not continue to withhold 2% upfront, only to tell contractors: “Sorry - you followed the rules too well, no recoverable credit for you.”

It’s time to fix the mismatch. It’s time to build a tax system as solid and forward-looking as the infrastructure rising across this country.

Let’s not let our builders break before the buildings go up.