Cooking The Goose

Groundins

By: Charles H.E.Campbell

In his column, Legal Notes, in the Business Observer of Wednesday, May 13, 2009, Gavin Goffe of Myers, Fletcher and Gordon addressed the issue of GCT on entrance fees for events- the ‘general admission tax’ as he appropriately called it.

Goffe raised some very important points of law, which require a re-examination by the Government of Jamaica (GOJ), if it is sincere in its stated recognition of the entertainment industry as a critical plank of our economy going forward.
He said, “charities [...] especially those that hold annual fund-raising events, could have a liability for failing to charge, collect and pay over GCT on admission fees over the past six years”. Goffe prognosticated that, “if GCT exemption is not allowed, it would deter charities and churches from raising funds by organising events and lead them instead to seeking outright donations, which are not taxable under either the GCT Act or the Income Tax Act.”

In reference to all-inclusive parties, Goffe went on “the organisers of high-profile, ‘everything-included’ (except the GCT) summer parties [...] fall squarely within the Act as providing a taxable service. The promoters’ liability to charge GCT is not limited only to the admission fees, but possibly also the promotional/sponsorship deals that they have entered into.”

Overheads for staged events in Jamaica are disproportionately high, in comparison to developed societies, because of the lack of appropriate venues, such as amphitheatres and multi-purpose complexes for large outdoor events and theatres and concert halls for indoor events. Thus live events in Jamaica require significant temporary infrastructure and technical production equipment. Furthermore, events in Jamaica are prone to be adversely affected by any number of variables including the vagaries of weather and other Acts of God, demonstrations, riots, gang violence, curfews and special state security operations.

By its very nature, therefore, the business of promoting live events is fickle and of extreme high risk in comparison to other sectors of the economy. When an event is postponed or cancelled, a significant amount of pre-production expenses have to be written off, while as a general rule, contractual agreements with suppliers and service providers must still be fulfilled. If affected by any of the above, the company will sustain heavy losses.Given the nature of the event industry, a promoter can only estimate the potential of his patronage, and will print tickets according to this projection. Where printed tickets for an event are not sold, they have no monetary value after the expiry of the event.

The entertainment product itself is highly expendable and time sensitive- once the date of the event has passed, the product has expired. In this sense, the successful management of an event is more of an art than a science. Special consideration should therefore be given to this sector in the approach to the collection of GCT.
Without sponsorship, most events would not be viable or profitable and in many cases, inadequate promotions due to lack of sponsorship lead to substantial losses for event promoters and executive producers. When GCT has to be paid out of sponsorship funds, it undermines the very purpose of sponsorship, in aiding to cover the overheads, which gate receipts and other sales cannot compensate for, in our small economy.

Now, it is rumoured that the Taxpayer Audit and Assessment Department (TAAD) intends to target and assess promoters for GCT collections based on the number of tickets printed or the capacity of the venue, and even to collect this prior to the staging of the event. Firstly, in producing a function in Jamaica, the capacity of the venue does not directly or necessarily relate to the concept, design and projected or actual attendance. Secondly, promoters are not able to access project financing through the banking system and therefore pre-production cash flow has to be sponsored or self-financed. In many instances, sponsorship funds committed to events are not paid over until after the event.

Thus, to pay over GCT prior to the event and even before tickets are sold, would drastically erode the event’s pre-production cash flow which may make the event unfeasible or even impossible. The most accurate, scientific and ethical method of assessing GCT is on actual tickets sold. If the TAAD strictly implements these policies, it would be the death knell of the industry. As the Jamaican proverb says, “dem goose (woulda) cook.” In the short term, the GOJ may get a windfall in taxes, but in the long run, they would be killing the goose that laid the golden egg.
Conversely, if the sector is to increase event admission prices by 16.5%, it will lead to a reduction of audiences across the board, because entry fees to events, given the cost of overheads, is already high. Such an increase will put many entertainment products out of the reach their target audiences and lead to a lowering of production standards, inferior entertainment products and ultimately a drastic downturn in the industry.

Registered companies in the events branch of the entertainment industry, which possess a current Tax Compliance Certificate (TCC), should not be treated differently from other companies operating in the Jamaican economy, as it relates to the collection and payment of GCT. In every other sector, companies are allowed to offset input expenses against GCT collected on behalf the GOJ on the sales of their goods and services. Rather than targeting a particular event for the collection of GCT, the event production company should be allowed to go through the natural annual cycle and pay GCT on their net sales for the year.

In my view, the government should be going in the opposite direction. Event companies should be allowed to offset the losses incurred from one event, by profits earned from proceeding projects in any given fiscal year. Further, GCT calculated on sales for functions should not be applicable and calculated until the event has broken even.

Email: che.campbell@gmail.com

Follow me on twitter: http://twitter.com/checampbell

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