Archive for December, 2009

New Gas Tax hits Jamaica

Friday, December 18th, 2009

The new gas tax announced by the government is not straightforward. Hopefully later we will get the details.  As of now,  the announced measure as it relates to the new gas tax is shown below. It must be noted that this is the second adjustment to Gas Tax in the last eight (8) months.

The announcement

Currently under the GCT ACT, fuel attracts both a specific and advaloreum rate of special consumption tax. It is now proposed that an advalorem rate of 15 % be appliecd as follows.

  • Where the fuel is manufactured in Jamaica, the 15% will be applied to the ex-refinery price inclusive of the specific component of the SCT
  • Where the fuels is imported into Jamaica the Advalorem rate will applied to the value (CIF value, plus customs duty, plus stamp duty and the specific component of the SCT), as prescribed in the GCT Act

The items to be affected include:

  • Motor Spirits including e10/87 e10/90
  • Automotive Diesel Oil
  • Kerosene (excluding (turbo Jet A1 Fuel)

Basically you have a formula like this

Ex-refinery price after taxes = (Ex-refinery price before tax + Specific component of SCT) + 15% of (Ex-refinery price before tax + Specific component of SCT)
or
Ex-refinery price after taxes = (Ex-refinery price before tax + Specific component of SCT) * 1.15
What is not absolutely clear therefore is how much is this specific component of SCT.  For a clue, we go back to April 2009.  In April 2009 this was the picture when $8.75 (additional SCT) was added to the ex-refinery price of gas.

April 2009 before Tax Adjustments

Ex-Refinery Before Tax: $44.17
Current Tax: $7.36
Ex-Refinery After Tax: $51.53

April 2009 before Tax Adjustments

Ex-Refinery Before Tax: $44.17
New Tax: $16.11 (7.36 + 8.75)
Ex-Refinery After Tax: $60.28

Now taken the specific component of SCT on E10/90 to be $16.11 the new price could look something like this

January 2010 before Tax Adjustments

Ex-Refinery Before Tax: $44.17
Specific Component of SCT: $16.11 (7.36 + 8.75)   (Fixed)
Ad valorem 15% :  $9.0321 i.e. (44.17+61.11) x 15%  (Variable)
Ex-Refinery After Tax: $69.29

Using the above information as a reference point, the specific component on E10/87. E10/90 and Automotive Diesel are $16.11, $16.48 and $15.42 respectively.

We could be looking at riots come January 2010. The taxi-men will certainly demand and increase.

From a government revenue side, there are some concerns. If the price of OIL collapses to the 40-50 region again, the variable intake will fall.

For the consumer if the price of OIL goes up the variable operation will increase as they will be hit by the increase in OIL price change multiplied by the Variable increase. This in effect could then severely dampen demand and reduce revenues to the government. It also means that for the consumer, the multiplier effect of the increase such as cost of transport of goods and derived product & services,   will be greater that it currently is.

Interestingly of all the measures announced, the revenue projected, JMD $9.4 Billion to is only slightly less than the combination of the increase in GCT ($3.6 billion) and removal of some exemptions ($6.2 billion),  i.e. JMD $9.8 Billion.

What is certain is that it is tough time ahead for Jamaican motorists and their families.