Shop Now - RezynTech
0 $0.00
Get Quote

Category: News

SolarBuzz Jamaica > Blog Classic > News
News

GCT On Electricity

April 17, 2012

Political promises tend to electrify voters but they can be costly.

Our understanding is that the general consumption tax (GCT) on electricity generates approximately J$3 billion in revenue per annum for the Government of Jamaica.

The full and unconditional removal of GCT from electricity bills would therefore reduce gross revenues by a similar amount, further increase fiscal deficit pressures, and represent a further narrowing of the tax base.

The Government has not, so far, indicated how this revenue loss would be compensated, and given the urgent need to balance our fiscal accounts, we believe it is safe to assume that the lost revenue will need to be made up by some other tax measure.

In the absence of any such proposed tax measures, The Gleaner Council has decided to critically assess the fiscal and welfare effects of the revised basis of application of GCT on electricity being proposed by the Private Sector Working Group (PSWG).

GCT on Residential Electricity Bills

The PSWG proposals firstly contemplate an increase of the current rate of GCT on electricity from 10 per cent to an ‘across-the-board’ standard rate of 12.5 per cent.

Importantly, the PSWG also proposes a simultaneous 50 per cent increase in the threshold that would incur GCT from 200 kWh/per month currently, to 300 kWh/per month.

Of the 508,000 JPS residential electricity customers, approximately 51,000 of them are liable to incur GCT on their bills based on their consumption levels.

Under the PSWG’s proposals, that number would fall by 28,000 to approximately 23,000. Therefore, less than five per cent of JPS customers would continue to pay GCT on their electricity bills.

Put another way, based on current consumption patterns, 95 per cent of residential JPS customers would no longer pay GCT on their electricity bills.

The Government’s policy is that 100 per cent of JPS residential customers, irrespective of consumption, will no longer pay GCT.

Again, the Government is yet to articulate the mechanisms that will be imposed to make that policy change at least revenue neutral.

We can conclude, firstly, that for residential electricity consumers, there is very little difference in terms of outcomes between the PSWG proposals and the alternative of removing GCT from electricity altogether.

Second, since there is undeniably a high correlation between income levels and rates of electricity consumption, leaving GCT in place for those customers whose incomes afford them the opportunity of consuming large quantities of electricity could justifiably be argued to contribute to the overall progressivity and equity of the tax system.

By contrast, the removal of GCT altogether would have the opposite effect – rendering the tax system more regressive and less equitable.

GCT on commercial electricity bills

We believe that the case for continuing to apply GCT to the electricity bills of commercial entities is even stronger.

Given that GCT is a value added tax, the proposed 2.5 percentage point rate increase to 12.5 per cent will not impact the cost structures of commercial entities, as they will be in a position to claim the GCT input tax against output tax liabilities in their monthly returns.

The increased rate of GCT will also not affect the final price to consumers of products and services, given that the standard rate of GCT would be reduced by five percentage points, from 17.5 per cent to 12.5 per cent.

In the case of non-compliant commercial taxpayers, it is true that the GCT on electricity represents a part of their cost structure and any increase in the rate, as proposed by the PSWG, would add to their cost.

If we have rational buyers in the market for these products and services, then, all else being equal, they would buy from the suppliers with the lowest cost, which in this case would be GCT registered firms.

This point is worth restating – the removal of GCT from electricity would have absolutely no impact on compliant taxpayers or their customers; rather, such a policy would simply reward the non-compliant taxpayer (“he who plays by the rules gets the shaft”).

 

http://jamaica-gleaner.com/gleaner/20120415/lead/lead3.html

News

Energy Fix Key To Economic Rebound

April 17, 2012

 

Carlton Davis, Contributor

While all eyes will be turned on Dr Peter Phillips on May 24 on how he composes the Jamaican Budget to achieve, in addition to economic growth and the protection of the vulnerable, meaningful fiscal targets that will not dissatisfy the Washington Consensus and the markets, we must not lose sight of the single most important factor which has plagued the Jamaican economy for close to 40 years: energy.

As I have written and spoken about on a number of occasions, cheap oil was a significant factor in the appreciable economic growth we achieved in the 1950s and 1960s, and expensive oil has been a significant factor in our anaemic growth performance for most of the period since then.

I don’t know how many people are aware that oil was so cheap that in the 1960s, we examined with Mitsubishi, and separately with Kaiser Aluminum, the building of an aluminium smelter in Jamaica. A smelter of the size contemplated required some 200 megawatts of electricity, about one-third of our current average domestic use. However, the quadrupling of oil prices in late 1973 put paid to this.

Skyrocketing prices

We have seen stupendous rises in oil prices, since the beginning of the latter half of the last decade with devastating consequences all round, but particularly the alumina sector, which has seen two plants closed for three years (the loss of production from which is equivalent to US$650 million in gross export earnings!) and the other two barely holding on for dear life.

The rather adverse effects on the domestic home consumer and the Jamaican economy can be illustrated. The average householder uses about 170 kilowatts of electricity per month. At US$0.40 per kilowatt-hour, this is equivalent to US$68 per month, or US$816 per year. If we calculate the cost on the basis of 500,000 such consumers, this represents a spend of US$408 million annually!

Were the price to be lowered to US$0.25 per kilowatt-hour, as is being touted for the new generating unit (Note that as this would represent only 60 per cent of the entire system in the first instance, the average price would be higher), this would translate into increased disposable income to consumers of about US$150 million, which would be a stimulant to the Jamaican economy in the purchase of local goods and services rather than most of it on imported oil.

Important objectives

In light of the foregoing, we have to strive to achieve four important objectives:

1. Replace oil with coal or natural gas, which are both cheaper now and expected to be so over the long term, for the electricity-generating and alumina sectors;

2. Get the country to conserve on its use of energy, regardless of the fuel;

3. Exploit local renewables and wastes in the production of energy to the maximum extent possible and feasible;

4. Rebalance the ratios between the use of public and private transport as a means of reducing our use of gasolene, which is far more expensive than the fuels used by the electricity and alumina sectors.

I consider assisting the prime minister and her relevant portfolio ministers in achieving these objectives as perhaps the most important of my current tasks.

Carlton Davis is special adviser in the Office of the Prime Minister. Email feedback to columns@gleanerjm.com

http://jamaica-gleaner.com/gleaner/20120416/cleisure/cleisure3.html

JPS News

JPS Assets Lose $1.8b Of Value After Revaluation

April 13, 2012

 

The corporate headquarters of Jamaica Public Service Company Limited, Knutsford Boulevard, New Kingston. - File

 

Monopoly electricity distributor Jamaica Public Service Company (JPS) has slashed US$21.3 million (J$1.85b) from the value of its land assets.

JPS’ first land revaluation in four years decreased the value of its landholdings and buildings by 28.8 per cent, from US$73.9 million in 2010 to US$52.6 million.

“Please note, as a part of ongoing operations and prudent business practice, JPS has its lands valued every three years. Prior to 2011, the last valuation was done in 2008,” said Winsome Callum, head of corporate communications at JPS, in correspondence with

News

EDITORIAL – Good Sign From Mr Paulwell

April 13, 2012

REMARKS IN Parliament on Tuesday by the energy minister, Phillip Paulwell, suggest that the Simpson Miller administration may have begun to grasp that flawed policies need not be pursued merely because they were declared.

In this case, the government seems willing to rethink its promise of a blanket removal of the general consumption tax (GCT) on electricity that it made in the heat of the campaign for last December’s general election.

That promise by Portia Simpson Miller was, understandably, popular, helping to win her People’s National Party the government and propel her to prime ministership. For, on the face of it, many thousands of Jamaicans would be freed of the 10 per cent tax on their electricity bills that was imposed by the previous administration.

The fact, though, is that it was largely a mirage – as the figures quoted by Mr Paulwell on Tuesday would have forced him to realise – were it not the case before.

Important points

The Jamaica Public Service, the light and power company, has, Mr Paulwell reported, 492,560 residential consumers. Of this number, 377,495, or 77 per cent, use less than 200 kilowatt-hours of electricity monthly – the benchmark at which consumers enjoy a price ‘subsidy’ on their power bills. Consumers at this threshold do not currently pay GCT.

There is a differential between the minister’s figures and slightly higher ones quoted by the Private Sector Working Group (PSWG) in its tax-reform proposals that offered an alternative to the government’s plan. Both, however, underline three important points.

First, from the political point of view, the constituency of poor voters that Mrs Simpson Miller most wanted to reach when she made the promise was already exempt from the GCT. Second, the removal of the tax would give a break mostly to well-to-do people who can afford to pay. Third, blanket removal of the GCT is also removing an incentive to conserve.

The PSWG had alternatively suggested keeping the GCT in place, but raising it to 12.5 per cent in line with the rate it proposes for all goods and services. It would, at the same time, raise the charge for the consumption threshold for GCT to 300 kWh, freeing more than 20,000 additional electricity consumers from the tax.

Neutral effect

The concept and the underlying implication of these numbers have apparently not been lost on Mr Paulwell and his Cabinet colleagues. He pointed out that raising the GCT-free threshold to 250 kWh, or 300 kWh, would benefit 10 per cent, and 16 per cent more electricity users. It would, at the same time, cost between $113 million and $136 million in revenue.

Minister Paulwell appears to be concerned about the impact on small businesses. But the GCT is an input-output tax, so compliant businesses could claim against their payments. The effect, therefore, would be neutral – except in the case of those businesses that are either not registered or compliant.

It can’t be the objective of government to reward people who do not play by the rules, or promote economic disorder. Moreover, as Mr Paulwell indicated, the cash-strapped government collected over $1.6 billion in GCT payments on electricity in the last fiscal year. That is not to be disregarded.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.

 

http://jamaica-gleaner.com/gleaner/20120412/cleisure/cleisure1.html

1 … 117 118 119 120 121 … 134

SolarBuzz © 2023. All Rights Reserved.