By Anthony Morgan 

Several Junior Market companies are about to lose their tax benefits as they have or are close to reaching their 10 year anniversary of being listed.

The Junior Market of the Jamaica Stock Exchange, which was established in 2009, was developed to foster the development of smaller companies.  It came with a ten year tax break for companies that list.  For the first five years, the companies did not have to pay Income tax, apart from the minimum business tax at the time.  For the next five years, they benefited from a 50% reduction on their taxes. However, one of the limitations was that listed companies could not exceed $500 million in share capitalization, as a means of ensuring that small and medium sized businesses were the ones that benefited.

According to Business Writer at the Jamaica Observer, David Rose, those companies getting the tax break were likely to reinvest the funds in the company and foster growth. 

“What you’re seeing now is that companies are shifting from full tax break back to regular operations,” he said.

Among the companies now facing that situation are Jamaican Teas, Blue Power Group, Access Financial Services, the Lasco Companies, Cargo Handlers and Dolphin Cove. 

The Junior Market was close to being scrapped in 2016 and was a hotly contested issue during the General Elections that year. The International Monetary Fund (IMF) was among those that recommended the Government do away with the platform, which some believed could be abused.

Fortunately, the Junior Market was not terminated.  Rose said some companies have done well with the time and have been thriving, while others have not been so lucky especially with the fallouts experienced from COVID-19

“It was a great idea and it has served well and created more jobs and income for the government indirectly,” he said.

Rose reasoned that companies like Lasco Financial Services and Access Financial Services have been strategic in their operations over the last 10 years, as they were aware that they would have been at a greater disadvantage than their peers on the market when the benefits expire.

“They’ll be paying more than the others,” said Rose, noting that financial services companies and others like the Jamaica Public Service (JPS) pay a relatively higher income tax of 33.3% compared to any other companies rated at 25%.

Rose said in preparation for that eventually, Lasco Financial Services acquired CrediScotia around 2017, while Access made its own acquisition of Embassy Loans in December 2018.

Lasco Financial was also announced recently as the first out of the Bank of Jamaica’s Fintech regulatory sandbox with a solution to facilitate payments for businesses online. 

“They took their time to expand operations and their product offerings,” said Rose.

On the other hand, Rose noted that some companies like Lasco Manufacturing have been benefiting from stay at home orders and are positioned to come out of the 10 years with a sizable buffer to handle the taxes. 

“Next year you’re going to see companies like Purity, Honey Bun and others that are going to be losing that tax break, but for some companies, they are in a good position to move forward in the sense that they don’t have to worry about the tax negatively impacting operations,” he said.

Meanwhile, Rose pointed out that none of the companies will be fully “off the hook” even upon reaching 10 years listed. That’s because Junior Market companies have to remain on the Jamaica Stock Exchange (JSE) for at least 15 years for those taxes to be fully remitted.

The companies can, however, voluntarily graduate to the Main Market of the JSE if they wish to raise more money. Jamaican Teas and Derrimon Trading Company have signalled their intention to do so, with others like Key Insurance already making that transition.

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Watch full discussion here