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A Chamber perspective of the Finance Act Part 2
Measures from the 2009-2010 Budget
Many of the measures announced in the budget for fiscal year 2009-2010 were due to be enacted in the Finance Bill, 2010. The Bill was passed in the House of Representatives but Parliament was dissolved before the Bill could be passed in the Senate. As a result, the Bill lapsed and the provisions contained therein were never enacted. The Act has given force of law to several of these measures, including:
• Increase in the Initial Allowance
• Extension of the Property Development Allowance
• Increase in approved cost of construction of houses
With effect from January 1, 2010, the act has increased the rate of Initial Allowance from 75 per cent to 90 per cent. It should be noted that, in addition to the initial allowance, a manufacturer is entitled to a 25 per cent wear and tear allowance. It would therefore appear that manufacturers would be entitled to a claim of 115 per cent in the initial year. However, since the legislation does not provide for a step-up in the cost basis, this would mean that the residue in the pool going forward would be reduced by the additional 15 per cent over cost. The amendment would therefore appear to confer merely a timing benefit.
Property Development Allowance
An Approved Property Development Company is entitled to claim as a deduction 15 per cent of the capital expenditure incurred in the construction of commercial or industrial buildings. The legislation provides that the BIR may approve a company as an Approved Property Development Company where it is satisfied that the company: a.has a paid-up share capital of not less than $1 million; and b.is locally owned and controlled. The Property Development Allowance expired on December 31, 2007. The act has extended the life of the allowance for properties that commenced construction on or after January 1 2008 and are completed by December 31, 2014. The extension of the allowance was intended to be an incentive for the struggling construction sector.
Approved Cost of Construction of Houses
Section 42 of the Income Tax Act (ITA) provides an exemption from tax on the initial sale or rental of certain newly constructed houses. The act increases the limit on the approved cost of construction of such houses after December 31 2009 from $250,000 to $450,000. In this regard, the previous limit had been in effect since 1979 and was very much outdated.
Tax Policy Committee
It is readily discernable that the act contains a variety of measures aimed at catering to the interest of lobby groups, stimulating the economy, delivering on the objectives of the present Government and at the same time ensuring sufficient revenue collection to keep the country’s financial affairs in order. These are all credible objectives. The problem is that it is often not feasible to balance the above fiscal objectives within the framework of a national budgetary process, which also seeks to outline the successes of the Government, establish a vision for the country, and address social, political and other issues, such as crime. As a result the chamber, in keeping with international best practice, has advocated the establishment of a tax policy committee that would include representation from all of the country’s stakeholders, including the private sector.
Such a committee would meet all year round and not just close to the delivery of the national budget with the objective of developing tax proposals for the consideration of the Government within a consistent policy framework, while simultaneously seeking to ensure that various pieces of current tax legislation are streamlined and made internally consistent. So often a change in, for example, the Fiscal Incentives Act requires a change in another piece of legislation, such as the ITA, if the full intention of the amendment is to be achieved. Our greatest disappointment during the 2011 budgetary process is the minister’s failure to announce the Government’s intention to consider and implement such a proposal, which we strongly believe is in the long-term best interest of the country. The chamber will continue to pursue this objective with all the vigour and encouragement needed to make this a reality.
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