Tax Reform for Growth, SCA’s commentary on the Jamaica 2025/2026 Opening Budget Presentation

Highlights of the Main Tax Measures

The government has introduced five major tax changes:

• Reduced Withholding Tax – Lowered the default withholding tax rate on dividends paid to non-residents.

• Increased Tax-Free Threshold – Gradual increases in the tax-free threshold for personal income tax.

• Higher GCT Registration Threshold – Raised the annual revenue requirement for GCT registration.

• Accelerated Capital Allowances – Faster tax depreciation for certain capital investments.

• Revised GCT on Residential Electricity – Adjusted tax rates and rebates for electricity residential consumers.

  
  

Key Changes and Analysis

1.     Lower Withholding Tax on Non-Resident Dividends The withholding tax rate on dividends paid to non-residents has been significantly reduced from 33⅓% to 15%, aligning with the rate applied to Jamaican individuals. This strategic move should boost investment and economic growth. However, we urge the government to extend this standard rate to all payments to non-residents for greater consistency and competitiveness with low tax jurisdictions in our backyard.

2.     Gradual Increase in the Tax-Free Threshold for Personal Income Tax (PIT) The tax-free threshold for income tax will rise over three years to approximately:

o   April 1, 2025 – J$1.8 million (from J$1.7M)

o   April 1, 2026 – J$1.9 million

o   April 1, 2027 – J$2.0 million

While this is commendable and expected, the implementation dates—set for April 1—create compliance challenges, as they do not align with the tax year (which starts on January 1). We urge the government to adjust the effective dates to January 1 each year to streamline administration. Further, the government should now be moving to implement a consolidated payroll tax, which was also anticipated.

3.     Higher GCT Registration Threshold for Small Businesses The gross revenue threshold for GCT registration will increase from J$10 million to J$15 million annually. This will ease compliance burdens for small businesses. However, a more practical and stable approach would be to peg the threshold to US$100,000, following precedents in tax legislation (e.g., capital allowance limits on certain vehicles).

4.     Accelerated Capital Depreciation for Investments Businesses can now recover the cost of capital investments (e.g., plant, machinery, computers) over two years instead of the current four to seven years. This measure supports economic growth and investment. However, making it available for a fixed period (e.g., two years) could encourage businesses to act quickly, potentially increasing capital investment and demand for credit in the short to medium term.

5.     Restructured GCT on Residential Electricity The government is making complex adjustments to GCT on electricity bills:

o   Prepaid customers: GCT rate reduced from 15% to 7%.

o   Postpaid customers: First 150 kWh now taxed at 7% (previously tax-free).

o   Postpaid customers using ≤250 kWh/month: Eligible for a 7% GCT rebate.

o   Additional 3% subsidy on bills for postpaid customers using ≤250 kWh/month.

While these measures aim to provide relief, the structure is overly complicated. A simpler and more effective solution would be raising the zero-rated threshold from 150 kWh to 250 kWh. This approach would be easier to understand, implement, and administer.

General Overview

The Hon. Fayval Williams, MP., Jamaica’s first female Minister of Finance and the Public Service, delivered her first contribution to the opening of the budget debates on March 11, 2025, under the theme: Resilient Jamaica: Strengthening Growth, Securing our Prosperity.  In her presentation, the minister lauded the efforts of the Andrew Holness led government for their discipline in financial management, investment in resilience and support for ordinary Jamaicans, through:

·        Record low unemployment rate of 3.5%  as at the end of October 2024

·        Significant reduction in debt-to-GDP which is on track to close at 68.7% for the current fiscal year, the lowest in almost 30 years, with further plans to reduce it to 60% or less by 2027/2028

·        Maintenance of International Reserves, which currently stands at USD $5.583.7 million, which serves as a financial cushion in case of external economic shocks.

·        Achievement of positive credit rating of BB- by Fitch, an international credit rating agency, a result achieved by good governance and improved debt management.

The minister highlighted other key achievements in the 2024/2025 fiscal year, such as the implementation of the Independent Fiscal Commission (“the Commission”), which came into existence on January 2025, whose role includes assessment of the budget and issuing an opinion on same. The Commission, in its first report, highlighted that the government’s financial management is on track and sustainable, however, it also highlighted historic issues, such as the government’s heavy reliance on tax revenues in the last 2 weeks of March, which coincides with the March 15th Income Tax Filing deadlines. You may recall in the 2021/2022 budget presentation, the then Minister of Finance, Dr. Hon. Nigel Clarke, MP., indicated the government’s intention to shift the income tax filing deadline to April 15th. Minister Williams indicated in her presentation that while the government has not abandoned this plan, source of funds would need to be identified to ensure the government is still able to honor its obligations in March.  

In fiscal year 2025/2026, the government intends to spend 1.2 trillion dollars (1,260,048,978,000), which represents a 9.6% increase in recurrent expenditure, 1.5% increase in capital expenditure, and $5 Billion decrease in interest expense.

The government has maintained for the 8th consecutive year, it’s commitment to “No New Taxes”, which may have been expected, as this is an election year. The Minister proposed an increased budget for key areas, including:

·        J$11 billion to the Jamaica Urban Transit Company (JUTC) for among other things new buses

·        J$10 billion allocation to the National Water Commission, to improve access to water, especially in rural areas

·        J$2.1 billion to the Ministry of Labour and Social Security, where approximately half of the allocation is to provide individual grants of $20,000

·        J$1.96 billion allocation for the upcoming General Elections

An overview of the key additional fiscal measures in the 2025 budget presentation is provided below:

Social Protection and Public Welfare

Implementation of Micro-Insurance Legislation

In fiscal year 2025/2026, the government intends to introduce legislation on the provision of micro insurance to low-income earners, who cannot afford premiums for traditional insurance products. One industry player has estimated that they will be able to offer micro-insurance products, with a monthly premium as low as J$250, for a $500,000 benefit. This, the government believes, will expand the access to insurance to the most vulnerable and provide coverage to lower-income groups. 

This initiative, we believe, would be specifically welcomed by self-employed, or middle to low-income earners, such as domestic workers, who may be currently unable to afford health or life insurance premiums.  

Student Loan Bureau (SLB) Reforms

Effective September 2025, the loan repayment period for new students will be extended to 10 years, up from 5 to 7 years for existing loans. Interest rates will remain the same. This change would increase overall interest payment over the life of the loan, but it would result in lower monthly payments.  Additionally, by September 2026, the government aims to expand the SLB’s loan offerings to include covering tuition, housing, books, laptops, and meal stipends. The government also plans to reduce interest rates on the various loans offered by the SLB.

These proposals may result in increased repayment rates, and no doubt, the added disbursement offerings will provide increased support for students. 

The government has decided to remove the need for guarantors for recipients of government scholarships and grants, up to J$2 million, cumulatively. 

Extended Opening for Tax Offices

The government intends to expand the operational capacity of Tax Administration Jamaica, specifically in having a tax office open on a Saturday, in every parish, as it aims to make the process of tax compliance more accessible and efficient for taxpayers.

Increased support for Micro, Small and Medium Enterprises (MSMEs)

The government has allocated J$2 billion to the Development Bank of Jamaica (DBJ) to provide financing start-ups and existing MSMEs, which will support growth and boost innovation. The DBJ will continue to support women-led initiatives, entrepreneurship and digital skills training programs.

The government has also signaled its approval for the creation of a Jamaica Stock Exchange (JSE) Micro Market, which would see entities raising capital within a range of J$10 million to less than J$50 million. The minister noted the success of the Junior Stock Exchange, in which companies raised capital in excess of J$20 billion and the Micro Market, is expected to be another success story. This initiative is poised to directly benefit micro and small businesses, 250 of which the JSE has already identified, are in need of funding and are sufficiently organized, but insufficiently provided for.  

The government continues to show its support for the stock market and its encouragement of Jamaicans to invest in same to build generational wealth. It may be too soon to tell, whether this initiative will be greatly utilized, as many may be reluctant to divest their businesses, especially in their early growth stages. But it should provide an additional option for low-cost capital, which is welcomed.

These initiatives clearly demonstrate the government’s intention to support the growth of MSME’s as it acknowledges the significant contributions these entities make to the economy, through tax revenue, job creation and increased economic activity and wealth creation. 

Energy & Electricity Sector Announcements

Reform of General Consumption Tax (GCT) on the Supply of Electricity to Residential Customers.

Currently, GCT is charged on the supply of all electricity, however, residential postpaid customers benefit from a zero rating of the first 150 Kwh utilized per month.

The government proposes to:

1.        Reduce the GCT rate on electricity to post-paid residential customers to 7%, down from 15%.

2.        Remove the zero-rated status of the first 150Kwh and replace it with a rebate 250 kwh threshold for rebate of GCT to post paid residential customers.

3.        Implement a system which will see the application of GCT at a rate of 7% on electricity usage of all post-paid customers. However, customers who utilize 250Kwh or less will benefit from a 7% rebate of the GCT charged (or credit applicable to future electricity bills), as well as a 3% subsidy (reduction), calculated on the GCT base. Customers who utilize more that 250Kwh will pay GCT on their total usage.

4.        Apply GCT at a rate of 7% on the full value of pre-paid electricity for residential customers.

We would have preferred to see a simple increase in the amount of GCT zero-rated to 250kwh for residential customers.

Although the reduction in the GCT rate on electricity supply to residential customers, and the effective 6% savings for post-paid residential customers whose utilization falls below 250 Kwh is welcomed, the method of application appears convoluted. We believe it would have been administratively easier for the government to reimplement a zero-rated limit of 250Kwh, instead of charging the GCT, and then offering a rebate.  

The government also proposes to implement an incentive package to curb electricity theft in  targeted communities. The package includes:

1.        Provision of promotional credits for their pre-paid accounts, valued at J$4,000 per month for a period of 6 months, starting at the date of meter installation.  The promotional credit will be available to the first 20,000 new, qualified pre-paid customers. This initiative will be funded fifty-fifty (50:50) by the government and the Jamaica Public Service (JPS).

2.        Additionally, pre-paid customers in need of house wiring and inspection will be assisted by the government, through the Jamaica Social Investment Fund (JSIF). The government has allocated J$1 billion towards this. 

GCT on electricity at a rate of 15% will be maintained for both pre-paid and postpaid commercial customers.

These adjustments to the supply of electricity will cost the government J$2.994 billion and are expected to be implemented effective May 1, 2025. Many Jamaicans will welcome the push to address electricity theft, which the Minister of Energy, the Hon. Daryl Vaz indicates amounted to J$40.385 billion dollars in 2023. This wide-scale, decades-old trend of theft, no doubt increases the cost of electricity for paying customers and needs urgent attention. The government’s move to absorb the cost of house wiring and inspection is a noteworthy incentive, which will allow those with illegal connections to legally and safely connect to the Jamaica Public Service Grid. It is noteworthy to mention that any cost to JPS is ultimately borne by the paying customers, so unless the revenue raised by JPS on the take up by undocumented users is greater than the additional cost to JPS, electricity bills will increase.

Fiscal & Taxation Announcements

Increase in the Annual Personal Income Tax (PIT) Threshold/Nil Rate

The increase in the PAYE tax-free threshold was possibly the most anticipated announcement among Jamaicans. The government has maintained that while it aims to provide social resilience and poverty reduction, it will not do so in a way that will threaten the fiscal reform that is ongoing. It has committed to easing the tax burden on individuals but will do so in a fiscally prudent manner.

Over a three-year period, starting April 1, 2025, the PIT threshold will be increased as follows:

April 1, 2025 → J$1,799,376

April 1, 2026 → J$1,902,360

April 1, 2027 → J$2,003,496

The PIT threshold was last increased in April 2024, where it was moved from $1,500,096 to $1,700,088. The further increase of the threshold will cost the government a total of J$13.97 billion across the 3-year implementation – J$4.8 billion of which relates to fiscal year 2025/2026.

Although welcomed, the timing of the adjustment, as with previous years, is a bit concerning, as an effective date of April 1, does not smoothly coincide with the payroll tax timing, which is calculated on a calendar year basis. The approximately J$100,000 increase per year will result in tax savings of approximately $25,000 per year, or just under $2,000 per month. Many Jamaicans will deem these tax savings to be grossly inadequate and at the same time very administratively costly on payroll software providers to implement.  

Additionally, the announced adjustments to the 2025 PIT threshold, means that taxpayers who have already filed their Declaration of Estimated Income Taxes and Contributions Payable for 2025, ahead of the March 17 deadline, will need to amend their returns.

We would have preferred to see a proposed phased increase in the PIT threshold with January 1st effective dates for the increases.

Reduction of Income Tax on Ordinary Dividends paid to Non-Residents

Presently, Ordinary dividends paid by Jamaican resident entities, to resident shareholders are subject to a final withholding tax at a rate of 15%. Conversely, dividends paid to non-resident shareholders are subject to withholding tax at a default rate of 33 1/3% for companies and 25% for individuals, unless reduced by double taxation treaties or incentives.

The government proposes implementing a flat rate of 15% for ordinary dividend payments to non-residents, whether individual or company. This initiative will simplify the current tax structure, and attract overseas investors, many of whom are Jamaican owned business – operating overseas. This initiative is projected to cost the government J$8.8 million, which may be a small investment for future possibilities.

Of note, Signature Creed & Associates’ (SCA) Audit and Advisory partner, in a meeting with the Prime Minister made a recommendation to reduce the Withholding Tax rates on payments to non-residents from a high of 33.33% to 12.5%. We are delighted that the Prime Minister and his government either listened or shared our mindset.  

We would like to see this taken a step further to be applied to all payments to non-residents and not just dividends.

Increase in the GCT Registration Threshold from J$10million to J$15million, effective April 1, 2025.

The registration threshold was last increased in 2019, when it was increased to the current value of $J10 million, from J$3million. This further increase in the threshold will cost the government approximately J$1.373 billion in revenue. The government hopes this initiative will address a disparity between the number of taxpayers and the share of GCT collected. For calendar year 2023, Tax Administration Jamaica noted that entities operation within the J$10 million to J$15million range accounted for 12% of the total share of GCT taxpayers, however, these entities contributed only 1.2% of the total share of GCT collected.

With the increased registration threshold, the government aims to reduce its administrative costs in relation to this tax type, while simultaneously reducing the GCT compliance costs incurred by micro enterprises and small businesses. We believe this could have been more efficient if a fixed US dollar equivalent amount was legislated as the registration threshold, which could be US$100,000.  The tax laws already have similar US$ benchmarks embedded in the legislation which has served very well, including a US$35,000 limit on capital allowances for private motor vehicles.

Introduction of an accelerated rate of Capital Allowances over the years of assessment 2025 and 2026

In a move to boost capital expenditure, expansion and retooling, the government has introduced additional capital allowance measures which will impact expenditures on fixed assets such as buildings, plant and machinery, equipment, intangible assets.

This incentive will allow for increased capital allowance deductions in the first 2 years post-acquisition and will reduce the number of years the specified asset classes will be depreciated for tax purposes. This revenue measure will encourage businesses to push their capital expenditure plans forward. The last major adjustment to the capital allowances regime was made in 2014. This move by the government will support modernization and encourage businesses to accelerate capital investments.

The published revenue measures list vehicles used to generate income as one of the asset classes that will benefit from the capital allowance acceleration, it is not included in the Table showing the current and proposed capital allowance structure. We await further clarifications in this regard.

This initiative is at no cost to the government, as the impact is on the timing of the tax deduction. It will benefit businesses which would be able to see a reduction in cash outflow as a result of increased capital expenditure.

Repeal & Replacement of the Income Tax Relief (Large-Scale Projects & Pioneer Industries) Act (2013)

The government intends to update the legislation which took effect in January 2014, but in the absence of the regulations, the ACT has been inoperative. Work is far advanced to rectify this, and the government intends to bring the legislation to parliament in the upcoming fiscal year. This is particularly important given its impact on the Harmony Cove Project – a major luxury development in Trelawny and promises an investment in Jamaica of USD$1 billion.

Other Development Projects and Announcements

Corporate Incentives & Payroll Adjustments

The Government intends to engage banks on initiatives that can be implemented to ease MSME banking barriers.

Increased provision of ATMs

The lack of availability of functional ATMs is a sore point for many Jamaicans. The government aims to partner with providers of ATMs to increase the supply in secure and convenient areas, especially in rural Jamaica.

Summary

The 2025/2026 Budget introduces key policy measures designed to support vulnerable groups and promote economic growth and development.

By maintaining fiscal discipline, making strategic investments, and implementing targeted social initiatives, the government aims to drive sustainable economic growth, strengthen social protection, and ensure prosperity for all Jamaicans.

Commentary on the 2025-2026 Opening Budget Presentation.pdf

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