Tax reform taking too long

Sunday, October 16, 2011

Under the Golding administration Jamaica has undergone a strenuous programme of economic reform. Most of the measures were made necessary by the dire economic circumstances of years of excessive borrowing by previous PNP governments and the unexpected and prolonged global economic crisis.

However, the JLP administration with the voluble Mr Audley Shaw as finance minister undertook these measures of their own volition and executed them with conviction. Give credit where it is due. The economy has shown economic growth in the last two quarters and could receive a further boost from increased bauxite production and the Chinese investment in the sugar industry.

The economic fundamentals are in very good shape. Interest rates are much reduced, inflation is very low, the exchange rate is stable, international reserves are healthy and tourist arrivals have been maintained. Add to that the resumption of pre-crisis levels of remittances and the Government's smooth management of the unprecedented and now famous debt exchange.

However, there are still some difficult issues to be addressed, including public sector wages, pensions, downsizing of the public sector and tax reform.

A comprehensive tax reform has to be completed to complement and reinforce the economic reform programme. This must encompass a rationalisation of the package of taxation measures and the creation of an efficient tax administration.

Tax reform is necessary because of a multiplicity of reasons.

First, improving tax collection will increase fiscal revenue, and, in conjunction with controlling government expenditure, will help to close the gap between revenue and expenditure and thereby reduce government borrowing. Less resort to borrowing by the Government, including the relatively inexpensive funds from the World Bank and the Inter-American Development Bank (IADB) will contribute to a reduction of the extremely high debt/GDP ratio.

Second, tax policy will no longer be a back-of-the-envelope money-raising exercise devoid of any economic rationale. Tax policy must, for the first time in Jamaica's history, be a tool for the promotion of economic development. Tax policy is not accounting, it is economic policy, and therefore each tax must have an economic rationale and be part of a coherent policy.

The urgency to complete tax reform derives from the impatience of the International Monetary Fund for the exercise to be part of its stabilisation programme and because the World Bank and the IADB regard this as a critically important step in the resuscitation of economic growth.

Successive governments have been talking about tax reform since Dr Omar Davies dismissed the report of the Matalon Committee. Since the tenure of the Golding administration we have been hearing the old refrain of "soon come". Tax reform is a clear case of paralysis by analysis and consultation. The reform is long overdue and needs to be completed before the end of this year.

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COMMENTS (14)

11/2/2011

You can read the details of the tax reform in the Green Paper on Tax Reform which you can download from the http://www.mof.gov.jm/publications Generally, I find that this is a well thought through and balanced proposal for tax reform that will both simplify the tax structure, lowering the statutory direct tax rates which will broaden the tax base and improving compliance and administration. (PART 1)

11/2/2011

There are a few things that still need some review and the proposal does allow for a phased approach. In my view the greatest challenge, will be in ensuring that the collection of taxes is above board – this applies both to customs and tax. The system needs to be fair and transparent but equally important is that the public perceives the tax system as fair and transparent also so that people want to pay their taxes! (PART 2)

11/2/2011

This takes time and political will is imperative. The public should demand that there is a proper and prompt debate in parliament. Unfortunately, the public is not usually on the forefront in pushing for better tax compliance either… So it is not surprising that parliament seems to be dragging its feet on this. The Finance Minister should try to push this through faster and convince his colleagues of the importance and urgency. (PART 3)

11/2/2011

This takes time and political will is imperative. The public should demand that there is a proper and prompt debate in parliament. Unfortunately, the public is not usually on the forefront in pushing for better tax compliance either… So it is not surprising that parliament is dragging its feet on this. The Finance Minister should try to push this through faster and convince his colleagues of the importance and urgency.

11/2/2011

David black
10/17/2011

Can the Editor say what these tax reform should entail? Tax policies are most effective when economies are vertically integrated. If this is not so then the exercise becomes one of marginal impact on either consumer spending or production. What this means is that "tax reform" has to become more studied and not filling the budget gap. Increasing production is giving waivers(guaranteeing profits) but rewarding efficiency. applying surtaxes on monopoly surpluses and taxing eco and social hazards.