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Laing: Tax neutrality, not special interests, behind preferential rates

Allegations that special interests were behind amendments to the tax rates for tourism and construction businesses were flatly denied by the State Minister for Finance yesterday.

Construction companies, hotels, wholesalers of petroleum products and wholesalers of food products were all moved from a 0.75 percent tax category to a 0.5 percent category under the amended Business Licence Act passed in Parliament on Wednesday. The amendments led Ryan Pinder, the Member of Parliament for Elizabeth to question the true motive behind them, saying these rates were for historic industries such as agriculture, fisheries and food processing–industries preserved and promoted as a matter of public policy.

“There’s absolutely no truth to any suggestion that special interests drove our decisions in respect of the groups that we reduced the business licence rates that we proposed,”said Zhivargo Laing, State Minister for Finance.Guardian Businessapproached the minister yesterday on Pinder’s allegations during the debate on the amendments Wednesday.

“It seems to me that this government has extended the preferential treatment of cherished industries in our country to special interests,”Pinder said during the debate.”Why would you extend this preferential rate to construction companies, except for the fact that the largest construction companies are generally supporters of the FNM?We know who the largest hotel operator supports.”

But Laing said the changes came out of concerns expressed by those industries that the new rate created a significantly greater tax burden for them than previously, which he said was contrary to government’s intention. He added that when the government’ran the numbers’those claims were confirmed and subsequently rectified by the amendment.

Laing went on to say that the amended rates represented a return to the amounts the affected businesses paid from 2002 to 2007 under the PLP administration.

“The amounts those people were paying were the same amounts based on the old act that was in force for the five years they were in office,”Laing said.”We were in fact trying to increase the rate, or had proposed to do so. We were putting the rates back down to a place where they existed when the PLP was in office. So if there is any special interest, then they must have established the special interest.”

Comparing the rates under the two systems may be a comparison of apples to oranges, however, as Pinder toldGuardian Businessyesterday the rate system previously was a function of the business’size and profit levels, with gradients from small to very large/very high for both factors. He said Minister Laing was making a generality which may not be true because of how fees were assessed under the previous regulations.

“Now he’s right if he’s assuming all construction companies operate at a low profit margin as was defined in the[former]act, which is 1/2 of 1 percent,”said Pinder.”But I would argue that that’s not necessarily the case. Even within the construction sector, construction companies operate at different profit margins. So I think the assumption isn’t necessarily valid, but just demonstrates the unfairness of this one rate scheme.”

Under the new act, all construction companies and hotels, regardless of size, profits, or any affiliations, would be assessed at a rate of 0.5 percent of turnover. There is simplification in the way licences are calculated, and according to a previous statement from Laing the level of discretion previously given to assessors has been removed. The fairness of this tax system, like many tax systems, may remain the subject of debate for some time, however.

Bills to amend the Banks and Trust Companies Regulation Act, the Insurance Act, 2005, and the Local Government Act, also passed on Wednesday. The purpose of those amendments was generally to provide consistency and clarity among the acts.

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