Business
Jamaica: Proposed tax reforms to increase revenue, stimulate growth
(Jamaica Observer)- Proposed tax reforms will add $JMD7.14 billion (US$ 80 million) to government coffers despite a reduction in the corporate income tax (CIT) rate from 1/3 of profits to 15 percent.
And the long-term benefit will be even greater as more companies become tax compliant and the reduction in rates encourages investment, the Private Sector Working Group on tax reform predicted yesterday.
Only 5 percent of registered companies currently pay CIT, said the working group, chaired by Joseph Matalon. To counter this, a proposed minimum tax of $JMD100,000 (US$1,157) or 0.5 percent of revenues, whichever is higher, would be levied on all 60,000 registered companies.
However, the working group’s models were unable to forecast how much of an effect the changes would have on revenues in the future, nor was it able to quantify the impact on exporters, though it insisted they would be positive.
“We have finally run out of options that would allow us to avoid the hard choices,” Matalon said. “The only really viable solution to our economic and solical ills are high and sustained rates of economic growth and job creation.”
Tax reform is also at the top of the list of things the International Monetary Fund (IMF) wants the government to undertake.
The working group had aimed to get unanimous support for its proposals but failed to bring the Jamaica Stock Dealers Association, the Jamaica Hotel and Tourism Association and the Jamaica Agriculural Society on-board.
Sandals, the country’s largest resort group, said in a statement that it supported the broad thrust of the reforms, but was waiting for more data, including the results of an Oxford Economics report, before making its final recommendation on tourism taxation.
The main revenue generator under the working group’s 145 proposals submitted to Parliament a fortnight ago would be the general consumption tax (GCT).
Although the working group called for a five percentage point cut in GCT from 17.5 percent to 12.5 percent, that would be more than offset by extending the tax to most goods that are now exempt.
The wealthiest 20 percent of Jamaicans currently get 28 percent of the $JMD22 billion (US$ 254 million) in savings due to exemptions, while the poorest 20 percent capture only 11 percent of the benefits.
The working group proposed that the government take $JMD2 billion (US$23 million) out of the new GCT revenues to compensate the poorest directly.
The proposals also call for a US$23 million break for ordinary pay-as-you-earn (PAYE) taxpayers.
Those earning less than JMD$500,000 (US$5,800) will pay no tax at all. Those over the threshold will pay 15 percent on the total amount, or 25 percent of earnings over US$5, 800. Earnings above US$ 12,700 a year will be taxed at 25 percent.
National Insurance Scheme rates would fall to 1.5 percent each for employees and employers, offset by dropping the US$ 11,570 cap on contributions by high earners.
Property taxes would be raised from 0.75 percent of unimproved value to 2 percent, recovering much of the money now lost on administering the levy.
The working group considered charging tax on the improved value, thus hitting wealthy owners of big houses harder than those in the inner cities, but decided it would be too difficult to maintain the necessary records of valuations.
The working group will be meeting with the Parliamentary committee on tax reform next month and hopes that many of its recommendations will be implemented in the April budget.