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Does Jamaica want tourism?

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SuperMarioIsAwesome is not online. SuperMarioIsAwesome
Joined: 12 Apr 2010
Total Posts: 16966
02 Jun 2012 04:00 PM
"THERE is little doubt that the economic situation in which Jamaica now finds itself is one that all well-thinking Jamaicans must be concerned about.
As a country, we have become satisfied with consuming more than we produce and we are now at the point economically where our creditors are forcing us to instill fiscal discipline, before they contemplate returning us to a sustainable and necessary borrowing relationship. But even more important, we are now at the point that demands moderation in our spending and, hopefully, a plan to improve rather than worsen our fiscal accounts, as has been our history.


We must grow the economy


Critical to a good economic plan however, must be an enlightened approach to what our competitive advantages are as they relate to the country’s earnings, as it must be our plan to grow our way out of our economic woes rather than live on the largesse of other countries and on the unending borrowing from both the multilaterals and the capital markets. Albeit a small country, Jamaica has established worldleading advantages in tourism, bauxite and ICT, and has had unrealised potential in agriculture and manufacturing (specifically on things uniquely Jamaican).
There is not one of these sectors that has not been severely impacted by the downturn in the world economy, but each, properly ranked, must be facilitated by sensible Government policies cutting across legal and taxation considerations which make and keep them competitive so they are kept profitable to sustain revenues for all concerned — investors, employees, communities and the country as a whole.

Tourism, an engine of growth


Specifically to tourism, it is becoming very clear that although each year the sector posts the highest levels of foreign exchange receipts (approx US$2b) for the country (excepting a couple years when remittances were ahead), and employs the second largest number of Jamaicans (approx 200,000) both directly (in hotels, transport, attractions and craft), as well as indirectly (trading, manufacturing, banking, etc mainly in and around resort town), most of us continue to miss the most important things that make the sector survive.
Tourism is a global industry, and with air and sea transportation connecting countries like never before, it is a market that has to be competed for in the most aggressive of ways possible. With just under 30,000 rooms Jamaica probably has the Caribbean’s most diverse room stock. There are almost 10,000 rooms in the small hotels category (including villas and apartments), while the balance range between 100 and 1,100 rooms. Maybe the most important distinction here though is the difference between the European Plan (EP) and the All Inclusive Plan (AI); with the majority of these rooms represented by the latter.
Each of the hotels, with their differences, is important and should be celebrated as the visitors we set out to attract to our shores are similarly diverse in their wants and needs. The main difference between the hotels is that the EP hotels allow you to “pay-as-yougo” through the vacation, while the AI makes you pay up front for most, if not all, the inclusions of the stay. Either way, Jamaica benefits through the myriad ways these businesses contribute to the economy:
• Direct Employment (managers, cooks, waiters, room attendants, receptionists, gardeners etc);
• Support for the attraction sector (more employment);
• Payment of taxes (GCT, land tax, room tax, employment, statutory, beach licence, corporate tax, customs duties, etc);
• Payment of utilities (which also include significant Gov’t taxes);
• Purchase of food & beverage (most of which is bought in Jamaica);
• Purchase of vehicles of all types (most without special incentives);
• House and apartment rental for staff accommodation (this is quite significant across the island);
• Guest transport and taxi services (JUTA, JACAL, MAXI and larger transport companies);
• Airport shops and services (airport rentals and employment);
• Airlines flying to Jamaica (employment, taxes, landing fees; and many more.

A competitive international business


To successfully compete for a visitor on the world market, hotels must mount marketing and advertising campaigns that are sustained across seasons to include seducing extremely competitive tour operators (vacation wholesalers), travel agents (individual sellers) and consumers, who are bombarded by costly and sophisticated multi-destination messages that try to distinguish countries, destinations, cultures, brands and peoples. The average cost of this exercise can add up to as much as 20 per cent of the advertised package price of a hotel or vacation:
• Up to 10 per cent to travel agents;
• Up to five per cent to tour operators;
• Up to five per cent for print and electronic advertising.
It is critical for us all to remember that these services must be secured in the markets where clients come from. So it is unfortunate that every year the Jamaican Government contemplates its Budget it attempts to apply GCT to these services, which are not bought or delivered in Jamaica (GCT by law can only be charged on goods and services delivered in Jamaica).
The Jamaica Hotel and Tourist Association (JHTA) has, for years, been at pains to explain to the Government this fact. Each year the Government agree to leave it alone and with little surprise it is being presented once again in the 2012/2013 Budget. So once again we must return to the table to convince the minister of finance (his first time around with this ‘dance’).

Tourism is export


Jamaica’s tourism sector has had to defend its demands to operate within a low tax environment, which in actuality is a misnomer, because as it stands we are currently highly overtaxed. Why do I say so? I mentioned the types of taxes we pay above, but let’s look more specifically at two facilities that the tourism/hotel industry receives that are constantly criticised:
• Reduced GCT Rate of 10 per cent as compared to the national rate of 17.5 per cent (now 16.5 per cent)
Tourism sells a local product to a foreigner for foreign exchange (similar to a farmer or manufacturer exporting their produce to the USA or Canada); therefore tourism is, by its very nature, an export industry. Manufacturers are, for the most part, not charged taxes on their inputs into the making of their products for export and this makes sense as the ultimate purpose of this process is for them to be competitive and for those companies and the country earning valuable foreign currency, which we badly need. Tourism is no different. The delivery of a good product with world-class services must be competitive and uniquely attractive to the foreigner, who will ultimately deliver their needed foreign exchange for the vacation.
The industry has fought hard to not have GCT imposed on us for these reasons, but over successive years the Government has gone ahead with ever increasing percentages of GCT, which is applied to individual hotels room rates. Make no mistake about it, Government holds the handle in these discussions and has prevailed on us, mainly through its insistence that the country’s fiscal situation has left it with little or no other choice but to do so. The compromise has been to allow the sector a lower percentage than the national rate, which we maintain is punitive, but accepted as a part of our national duty.
The GCT percentage aside however, the tourism sector pays more than its fair share of GCT as we are, without a doubt when combined, the largest sector that consumes goods and services in the country, which for the most part attract the national rate of GCT. Whether it’s food and beverage, hardware, manufacturing (even though they say we don’t buy from them — we do), accounting, auditing, legal and other consulting services, training, insurance, etc.
Many, if not most businesses, operating in Montego Bay, Ocho Rios, Negril and surrounding towns only survive because of direct or indirect links to tourism. But Kingston is not immune from tourism’s touch, and it would be a challenge for most large companies to deny their relationship with us. Each of these companies collects large sums of GCT from tourism as a part of their billing to us.
Sadly, though, when you review the national accounts it is difficult to disaggregate our contribution to these industries, and so we are constantly under attack by Government, other sectors and increasingly our multilateral partners as not paying our fair share. I submit, however, that if the Tax Administration and Audit Department (TAAD) wishes to, it could, using the GCT returns, report the distribution to the other sectors for all to see.
Today, we now face a situation where almost every government is racing to apply taxes on anything they can find; and tourism, which as in our case, seems to be doing well (at least to the uninitiated). Truth be told, there are only two things that can be done with taxes a) pass it on to your customers, or b) absorb it as an expense to the business. Both of these considerations have been employed by the sector and the push back from our customers and the ever increasing losses being realised are making both of these an unviable measure going forward.
• Hotels Incentive Act/ Resort Cottages Incentive Act/ Attractions Incentive Regulation.
Under the above acts and regulation (note that the Attractions Incentive Regulation was never made into law and has been used at the discretion of mainly the minister of finance to inspire growth in this all-important sub-sector) the Jamaican tourism sector has been able to attract both foreign and local investment in the categories of major and significant structural improvement to existing properties, as well as the building of new hotels.
Each of these investments has resulted in capital projects valued at an average of 30 per cent of the value of the property and, of course, in the case of new built, the full investment. The incentives given typically are for up to a period of 10 years and include the waiver of Customs Duties, GCT and other taxes on a select list of inputs as well the waiver of Corporate Income Tax.
Important to note, however, is that the amounts spent on the construction projects always result in a multi-million dollar investment immediately in property and people, but ensure a residual benefit to Jamaica as a whole when the destination’s competitiveness is taken into account. Add to that all the taxes and expenses listed above.
The arguments used to discredit this facility include that the country cannot afford giving up necessary taxes, etc through such waivers, but it is also important to decide as a country how we wish to be perceived by the investment community, as well as the travelling public when they contemplate where to invest their capital and, in the case of the latter, their hard-earned income in this highly competitive market.
I submit that the Government must continue to position Jamaica as the best place to invest now, taking full advantage of the employment, consumption and statutory benefits derived from the investment and not be shortsighted to remove the incentives and drive interested investors to competitor destinations which are happily welcoming them to their shores. And, as it relates to our visitors, they are far too sophisticated and informed to blindly travel to a destination that becomes stale and dated because we are not mature enough to understand that we must induce investors spend at all levels of the value chain, of which one of the most critical is the capital product (buildings, attractions, etc).

New Taxes 2012/2013


This brings me to the recently announced tax measures of increased SCT, CET and GCT levied on the sector by the Government. Following on a very effective but misguided campaign by the PSOJ’s Private Sector Working Group (PSWG) — which was clearly designed to deflect attention from their own trading and manufacturing businesses — tourism has been squarely placed in the path of a Government desperate for real solutions to the country’s fiscal situation.
To the PSWG’s credit, we all were dazed and distracted by their ‘cloak of credibility’, which, when ‘defrocked’, was really a manifestation of the jealousy, but more importantly complete misinformed position on how the tourism sector worked. Much time was spent showing them how difficult it was to find, get and keep business within the sector and more importantly how costly and sometimes unprofitable an exercise it turned out to be.
The PSWG proposed that tourism should be charged an additional J$1.5b in taxes, but the Government went even further and has now applied measures that seek to extract from the hotel sector what seems to be in the order of more than J$6b. These new taxes are made up of new GCT/Head Taxes, increases of SCT and CET on alcohol, GCT on guest transportation, etc. Interestingly, all other sectors have benefitted from:
• 8 1/3 per cent reduction in Corporate Taxes
• One per cent point reduction in prices (with a drop to 16 1/2 per cent GCT).
Therefore, for all sectors other than tourism, things are looking up. Not a bad day’s work by the PSWG.
There is not one tourism player — small, medium, large, local or foreign — that is not now in shock. While the value of what is being asked from us is becoming clearer, there is not one tourism business that knows how they are going to pay what is being demanded. This new tax package is unrealistic and represents the beginning of the end for businesses that have endured almost every international and local shock with varying results.
This one, however, is the worst and we can only hope that the individual businesses find a voice as well as that the Jamaica Hotel and Tourist Association will be able to provide the Government with the clearest insight into what’s at stake. All of Jamaica — tourism players, other sectors, Government and Jamaicans on a whole — must decide if we want this sector. If we do, we have to agree on a way that will ensure that Jamaica wins competitively and economically. Simply put, this needs partnership, not ‘one-upmanship’."
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jbg23 is not online. jbg23
Joined: 21 Feb 2011
Total Posts: 2163
02 Jun 2012 04:11 PM
Mining is an unfortunately anti-capitalist venture, since it lends itself to a sort of oligarchy with no incentive to develop the economy as a whole.
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Creatant is not online. Creatant
Joined: 02 Nov 2008
Total Posts: 3158
02 Jun 2012 04:35 PM
Hell no. Tourism in Jamaica is what got my family relocated.
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