As part of the government's fiscal incentives regime, an Employment Tax Credit (ETC) was introduced and became effective on January 1, 2014.
This allows employers who are engaged in a trade, profession or vocation or the rental of approved hotel accommodation to now claim a credit against income tax based on statutory payroll deductions.
The ETC is not automatic, however. To qualify for the credit, eligible persons must file and pay their monthly statutory payroll deductions (S01) on time. Such employers may claim the total amount of their payroll statutory contributions for the education tax, National Housing Trust (NHT), National Insurance Scheme (NIS) and HEART Trust - that is, both the employee and employer portions, which have been declared and paid on time for that year.
Any statutory deductions paid after the respective due date or in respect of a month for which the Form S01 is filed late will not be taken into account when computing the ETC.
For self-employed persons who are also employers, they must file and pay over their personal statutory obligations on time in addition to filing the S01 return for their employees and make the payments on time.
Also, where a self-employed individual employs staff members through a service company established solely for that purpose, and which is wholly owned by such individual or partners, then the individual or partners may, with the approval of the Commissioner General, be regarded as an eligible person and may, in lieu of the service company, claim an ETC by reference to statutory deductions accounted for by the service company in the same proportion as their entitlement to their share of profits of the trade, profession or vocation.
COMPUTING YOUR CREDITS
The ETC can be computed by an employer in three easy steps.
- The employer must first identify the total payroll statutory contributions made that are eligible for credits.
- Second, compute how much of the income tax payable is attributable to the trade, profession or vocation. This is necessary as the ETC may not be claimed against any income tax chargeable on non-trading income, such as interest and dividend income.
- Third, determine 30 per cent of the income tax payable, as the amount which can be claimed is restricted to 30 per cent of the income tax payable.
Careful note should be taken that if the employer makes a tax loss, an ETC would not be applicable. Similarly, the amount of any excess statutory payroll taxes is not permitted to be carried forward to another tax year.
Not all businesses are eligible to claim the ETC. Those are: regulated companies such as those supervised by the Financial Services Commission, the Bank of Jamaica, the Office of Utilities Regulation or the Ministry of Finance; persons operating in the bauxite and alumina industries; persons operating as a group head office company; as well as persons operating under the Jamaica Export Free Zones Act are not eligible to claim the new Employment Tax Credit.
The ETC regime is designed to benefit tax-compliant employers. Employers who comply with their obligations will preserve and maintain their employees' benefits under important national programmes such as NHT and NIS while reducing the effective rate of income tax borne on their active trading activities.
Additionally, eligible employers can use the ETC to reduce labour costs and increase after-tax profit. In short, it literally pays to be compliant.
Eligible businesses, whether operating as a company or individual, are therefore encouraged to file and pay their statutory obligations on time to take advantage of the ETC.
This is the third article in the weekly 'Tax Educator' series by Tax Administration Jamaica on the new revenue measures and other tax policy changes aimed at the business reader.