An objective look at the new tax package
The Government has announced a new slew of taxes to fulfil its election promise of the $1.5-million tax break. While there has been some backtracking of the initial promise of no new taxes, the level of backlash being spewed is quite unnecessary.
The bulk of the new taxes will come from an increase in the special consumption tax on petroleum products which was the case in the financial year 2016-2017. Looking objectively at the increase placed on fuel is a far cry from the peak oil price we experienced based on data from Petrojam during the week of June 26, 2014. Oil being an international commodity is priced in United States dollars, which means it is susceptible to the depreciation of the Jamaican dollar. The price of E-10 87 during that week hovered at close to $128.10 before retailers add their margins, which when taken at the exchange rate of the day at $112.77 to US$1 equals US$1.14 per litre. If that price is now translated to today’s exchange rate of $128.52 to US$1 a litre of E10 87, it would be $146 — a far cry from the $104.20 being sold by Petrojam at last week’s prices.
A lot of the reprieve in low gas prices has to do with the international markets being oversupplied and with depressing prices. Instead of both forex and people’s purchasing power being spent to purchase oil to keep the country going, it is being kept in the country. This is apparent in the country’s improved balance of payments position and low inflation rate. The money kept in the country by reduced oil prices and the income tax giveback should have a multiplier effect on the economy and, in theory, accelerate economic growth, which last year was almost two per cent.
No person wants to pay taxes, but they are essential to make a country function properly. Everyone should be paying their fair share because everyone uses government services, and the shift from direct to indirect taxes is needed to capture everyone in the tax net. So the Government imposing more taxes on fuel to fund the giveback to the people is necessary, instead of just implementing new taxes to meet International Monetary Fund conditions.
The near two per cent growth the country experienced last year was not much, but it’s a start, and should be accelerated by the next phase of the giveback. It’s my firm belief that the different sectors that use petroleum as a main input should be able to absorb the added cost without passing it on to consumers.