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Aubyn Hill | Confusing taxes and growth

Published:Friday | January 8, 2016 | 12:00 AM

Confusing taxes and growth

All law-abiding Jamaicans pretty much accept that the Government is obliged to collect taxes in order to finance the services and infrastructure which citizens and residents legitimately require of their government.

While some taxpayers may harbour reluctance in paying their taxes, most also accept that for their country to run properly, these taxes have to be paid. Unfortunately, the thinking of policymakers which drive the imposition of certain taxes appears to be quite muddled, and so even the idea of paying these taxes becomes a painful experience. The various tax payments at the Customs make a good case in point. This past week, a friend of mine arrived from the United States with a computer, which is listed as duty-free under the prevailing customs arrangements. The concept of letting in certain items duty-free is based on the broad principle that the item will be used for productive purposes. One would take it as a given that once an item is listed as duty-free, and, therefore, for productive purposes, it would not attract any taxes. My friend had a rude awakening because he also had that expectation. Dr Peter Phillips' drive to collect taxes from every possible activity and angle, probably driven by the fiscal demands agreed with the International Monetary Fund, has distorted the whole principle of removing the tax burden from assets that are clearly designated and will be used for productive purposes.

Given the current muddled arrangements whereby a computer device designated as duty-free is caught in a weird kind of thinking that taxes - but no duty, as if duty is not a tax - should be paid on the item, the customs officer was obliged to charge my friend three different types of taxes on this duty-free computer.

Exotic levies

There was a customs administrative fee (CAF) for $5,000. As taxpayers, are we not already paying for the rent, utilities and salaries of the customs operations? So what is this CAF about? I almost forgot - it is a novel invention by Dr Phillips' tax crusaders which they imposed on us in April 2014.

Another exotic creation foisted on us by Dr Phillips and his taxing agents in 2014 was the environmental tax (called a levy!). The duty-free computer attracted a $120.34 charge from this farce of a tax for the Treasury's coffers. Please keep in mind that this computer is supposed to come into the country duty-free and that would put in a person's mind that there would be no levies to be paid to Customs or other government agents. Well, the third tax was the highest of them all - an amount of $6,275.49 for GCT. When my friend pointed out to the customs agent that it was absolutely ridiculous to be paying so many different taxes on a 'duty-free' computer item, the customs officer was clearly embarrassed and agreed with the comment, but said "those are the rules and we have to follow them".

So our muddled-thinking Government charged a total of $11,495.83 in taxes for this computer that is supposed to be used for productive purposes. That is a whopping 47.76 per cent of taxes on a $24,068 'duty-free' item.

Clearly, Dr Phillips and his team simply do not grasp the tremendous disincentive to growth that they construct when they put so many taxes on a simple item that is supposed to be used in enhancing productivity and increasing growth in the country. The importer of this duty-free item was told that the reason some of these taxes were imposed was because of his admission that the computer would be used for some business purposes, as well as for personal activities. This quite silly tax regime, in addition to being a disincentive to growth, encourages persons to lie and state that their computers are only for personal use.

Growth barriers

The Government's confused thinking on taxes hampers growth in other ways as well. For instance, I understand that while the Government allows the personal computer to enter duty-free, an entrepreneur that decided that he or she would set up a computer manufacturing business in Jamaica will have to pay duty on all of the imported parts that would be used in the manufacturing process. The result of that mixed-up thinking on the part of the Government is that we use our tax policies to protect jobs in foreign countries.

The computer that is manufactured overseas by foreign workers is allowed in duty-free while we rigidly ensure, on the other hand, that jobs are not created in Jamaica by the use of customs duties, levies and taxes on imported items used as raw materials in our manufacturing processes. Both the computer and computer parts that would be used for productivity and manufacturing purposes should be allowed in duty- and tax-free. Both serve our economic and revenue-growth interests.

Manufacturers in every sector in this country bemoan this quite foolish policy. Persons in the renewable sector face a similar kind of it's-duty-free-but-you-have-to-pay-many-taxes conundrum. It lays bare the fact that the Government, and especially, apparently, the finance minister, does not yet understand that if it installs sensible tax policies and regimes that actually encourage growth and unemployment, it would not have to seek to tax everything that is stationary, or anything that moves, in the country. In a growing economy with more and more people joining the workforce, the tax base will increase, as will the amount of taxes the Government is able to collect. A more consistent philosophical approach to using a really reformed tax regime - lower tax rates and much less complex tax submissions - to assist economic growth would take the country a far way forward in increasing employment and tax collection.

Aubyn Hill is CEO of Corporate Strategies Ltd and chairman of the Economic Advisory Council of the leader of the opposition.


Twitter: @hillaubyn