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Scrap the CET, tax low earners less - Matalon

Published:Friday | October 10, 2014 | 12:00 AM
Joseph M. Matalon

Joseph M. Matalon, chair-man of the Private Sector Working Group on Tax Reform (PSWG), is calling for a significant reduction in taxation on Jamaicans falling within the lower-income bands, saying that the change would serve to fuel economic growth.

In a speech that was to be delivered last night to the country's manufacturing bosses, Matalon also pitched for the Common External Tariff (CET) - as currently structured - to be scrapped, noting that Jamaica was experiencing significant revenue loss because of it.

The PSWG head said while Jamaicans may have become reform-weary, what with the massive slate of changes undertaken since the island inked an agreement with the International Monetary Fund (IMF) within the last two years, more needs to be done to realise the full potential of a reformed ecosystem, this including changes which will raise compliance levels.

"Jamaica's compliance record across a range of tax types continues to lag behind those of our peers and it is only in raising those compliance levels that any further growth-inducing tax policy reforms, or indeed any increase in growth-inducing government capital investments, will become possible," Matalon explained in a copy of the speech prepared for the annual Jamaica Manufacturers' Association awards banquet.


But, even before addressing compliance, the PSWG head said the burden placed on low earners was in need of attention.

"It is self-evident that compliant PAYE taxpayers - representing only perhaps 35 per cent to 40 per cent of the employed labour force - bear a disproportionate burden of taxation, and in particular, those taxpayers in the lower-income bands. I believe that there are policy reforms options - along the lines of those recommended by the PSWG - that would not involve significant revenue sacrifices, but which would render the system more progressive and equitable while also providing a significant measure of relief to overburdened taxpayers in the lower-income bands," he said noting the a positive economic impact would result.

"By providing tax relief to lower-income taxpayers with the highest propensity to consume those goods and services produced by our productive sectors, we would also provide a welcome boost to domestic demand to the benefit of the economy as a whole."

As for the CET, the tax is outdated and requires urgent review, said Matalon, citing significant revenue loss of around two-thirds of one per cent of GDP from the tariff and duty-free entry of CARICOM imports.

The CET, he said, also imposes constraints on economic efficiency, effective customs enforcement, and Jamaica's limited system of trade protection.

"The complexity of our tariff structure, and the number and wide dispersion of duty rates imposed - even within a single tariff heading - provide myriad opportunities for unscrupulous importers to misclassify their imports in an effort to evade legitimate customs liabilities," said Matalon.

And, trade protection mecha-nisms under the current tariff structure by and large "impose protective tariffs only on primary products, but perversely, very low or zero tariffs generally on a number of finished goods that are produced from those same primary products," he said.

Matalon asserted that as the largest consumer market within CARICOM, "Jamaica can and must demand that these issues be addressed" through reforms at the Caricom level,

"In my own view, if we are to remain in the union, not on the basis of sentimental historical attachment, but on the basis of true mutual benefit, then maintaining the status quo is not a serious option," he said.