Why Currently Listed JJSE Firms Should Look Forward to an Increased Tax Rate

I think it is safe to agree that the 10-year tax incentives for companies that list on the Junior Stock Exchange has been a real incentive. Policymakers did a good job of coming up with a package that is enticing to small businesses that need growth capital.

With the many successful listings we have seen to date, it can be deemed a roaring success.

The issue now is that in this current economic environment, one of the pre-requisites for successfully completing the IMF deal is an Omnibus Tax Incentive Bill, which in the current form will in effect eliminate the tax holiday that junior stock exchange firms enjoy for the first 10 years after they have listed (5 years of no tax, 5 years of half tax).

As can be expected, there has been push back.

The problem is that policymakers and bureacrats can’t be trusted to manage the fiscal affairs of this country properly. Every Tom, Dick and Harry will want a waiver - and there is no sign that they have enough backbone to say no. So, the solution that the IMF is insisting is a flat tax rate across the board, and no incentives, no waivers, no exceptions.

So let us examine the rationality behind why it makes sense for firms that are currently enjoying the tax breaks to give it up.

We have to make a few assumptions:

  1. Let us start with the “worst case” - a firm that lists the day before the bill is made law, therefore they get $0 in tax benefits.
  2. The firm has significant growth prospects, otherwise they wouldn’t need growth equity capital.
  3. The management is not interested in just sucking cash from the company in the early years, but wants to grow the company.
  4. The firm will eventually migrate to the JSE and be a major player in the private sector.

Sample Scenario before Omnibus Bill

  • Revenue before listing was $50M JMD/year.
  • At the end of the 10-year period, the firm is 10X bigger (i.e. $500M/year revenue - inflation adjusted) than when it started
  • The firm is still growing at a reasonable 20%/year
  • The firm has a net profit margin of 15%.
  • Corporate Tax Rate: 25%
  • Taxes paid: $0 for 10-years - due to the wavers.

For the 10-year period after the incentives expire, their Total Tax Bill will be roughly: $584M JMD.

Sample Scenario after Omnibus Bill

  • The same assumptions for the firm’s performance
  • Corporate Tax Rate: 15% (down from 25%)

For the 10-year period after the incentives would have expired, their Total Tax Bill will be roughly: $350.44M JMD.

For a total tax savings of: $233.68M JMD.

The beautiful thing about the latter scenario is this tax rate should (in theory) stay that rate forever - so the longer it stays that low is the more the benefits compound over the long term. If you assume the average life of a listed company in Jamaica - Life of Jamaica, Broilers, etc. - the tax savings over the long term, in aggregate, will likely be huge (assuming that future governments can resist the urge to raise the rate).

Another good thing that removing the tax incentive does is that it will encourage the JJSE listed firms to reinvest all/most of their profits back into the company - rather than taking it out and paying taxes on it. That will likely increase their growth rate, and increase the tax savings when they eventually start to declare a profit and pay taxes on that profit.

I have done up a basic spreadsheet with these scenarios that you can play with.

So in reality, by removing the tax incentive - and encouraging growing companies to keep reinvesting in growth that is actually a better outcome for the long-term health of the economy, and for the shareholders of the company as these numbers show. A lower tax rate is also beneficial to smaller companies before they get to the JJSE stage, so it increases the likelihood that there will be more listings.


Naturally a lot of the benefits depend on the final corporate tax rate. If it is even lower than 15%, say 12.5% then the case looks even more compelling.

It also depends on the self-restraint of future policymakers to not try and raise the low rate and eradicate all the gains.

Depending on how the bill is written - and implemented, it has the potential be a win-win for all involved including those currently paying 0% corporate tax rate.

Thanks to Gordon Swaby for inspiring this post with a FB post today, and for proof-reading it.