Power company Jamaica Public Service Company and its Asian owners plan to create a vehicle to own and operate the planned 360-megawatt plant, whose output will be sold to the electricity provider once it is commissioned, but Wednesday Business has learned that the Jamaican Government is gunning for a bigger share of the plant’s ownership.
Well-placed sources have told
The Government is moving to implement measures to cut the cost of electricity in the public sector with the aim of realising savings of $2 billion a year.
JAMAICA HAS once again approached its Caribbean neighbour, Trinidad and Tobago, to secure a supply of liquefied natural gas (LNG)
Energy Minister Phillip Paulwell said the advances were made by the new Government as early as February. He said he has had discussions with his Trinidad and Tobago counterpart on the issue.
“We are trying to see if there can be an agreement at this stage in relation to the supply of LNG,” Paulwell told
The newly established National Energy Council is to hold its first meeting today.
The bipartisan Council was approved by Cabinet last month with the mandate to reduce Jamaica’s energy costs and get Jamaicans to support the use of
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
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
Weeks after stakeholders in the petroleum sector met with energy minister, Phillip Paulwell, he is yet to respond to their proposals for reducing
MINISTER of Science, Technology, Energy and Mining Phillip Paulwell is seeking to reassure the nation that
IN THE past two and a half decades, countries all over the world have sought to pursue the restructuring and introduction of competition into the electricity sector. In general, this has been prompted by the view that state ownership of utilities as well as the absence of competition, whether for privately or publicly owned utilities, invariably results in excessive costs, low service quality, poor investment decisions, and lack of innovation in delivering service to customers.
Furthermore, as has been the case in virtually every other sector of the world economy, rapid changes in technology, have created opportunities for new industrial structures capable of delivering electricity at lower cost. New technologies have impacted the generation of electricity and the computing systems used to meter and dispatch power. Customers, especially those with low levels of demand, have benefitted globally through innovations in electricity generation and customer service delivery. Unfortunately, in countries where profits are guaranteed, regulation is weak or competition is minimal (or non-existent) the electricity sectors have been slow to adapt and exploit these technological opportunities.
Models of competition
Several models of competition and industry restructuring have emerged in the past two decades. Respective country approaches usually involve one or more initiatives drawn from a portfolio of recommended practices and typically deployed on an incremental, progressive basis. Some of these include:
a)
THE Jamaica Public Service Company (JPS), has appointed Kelly Tomblin as the new president and CEO of the light and power company effective today.
The appointment comes almost four months after Damian Obiglio
