Everald Dewar | The $1.5m tax plan iniquity
Featured in the JLP's manifesto is the highly touted tax-reform proposal of lifting the personal income tax threshold to $1.5 million for some persons.
There are a lot of concern as to the effect of bringing this about.
Although there are good reasons to be troubled and not only for want of consideration but men in controversy are apt not to put the best construction upon the actions of their opponents tax practitioners take a different approach to these matters, not having to consider whether the policy will create a budget deficit or if it is equitable.
We live with a code from the immortal words of Rowlatt: "There is no equity about a tax". It is what will be put into the law that matters.
Assuming then that April 2016, there will be two tax thresholds in motion $1.5 million for everyone earning up to that amount and the current threshold of $592,800 for every other person it should first be made clear whether the $1.5m will be applicable to salaries and wages from employment or to self-employed persons as well.
Taking two employees one earning $1.5m and another earning $1.6m it is true that, taking into account three other payroll deductions that will not change, the person earning $1.5m will take home approximately $1.4m while the person earning $1.6m will take home $1.3m.
But, putting aside the bearing of a grudge, this would not be the intent of the policy.
There are concerns that employers might collude with their employees to fix it; that, for instance, a person earning $1.6m renegotiates to make his salary $1.5m and have the balance of $100,000 classified as a tax free benefit. The law could address this by making all payments made by the same employer a part of the $1.5m.
Another anomaly in the puzzle is that persons who earn a dollar over the $1.5m threshold will not qualify. Still, inequity is a feature of the creature called taxation. Every relief granted to specific activities and industries have this kind of result.
It is also said that there will be a heavy administrative burden on employers and perhaps complicated legislation but this is also par for the course.
The tax policy seems to have another element where employees earning over $5m will receive no threshold. However, a tax free threshold is applicable to individuals who are resident in Jamaica that is, the entitlement applies to every human being.
This is an expectation that goes far beyond the threshold. It is important in tax law because of the complex nature of every member of society to obtain a minimum standard of living. Taking this away is treating such persons as not so entitled, and should be reconsidered.
Taxation is of such fundamental importance to the development of the economy that care has to be taken to approach this matter carefully. Therefore, this reform should go a step further.
Take for instance that of a married couple, and picture the scenario where a mother decides that the best course of action is to put her career on hold, and provides 24-hour day care for the children herself. At the moment, the threshold cannot be transferred; neither can it be carried forward to another year. The suggestion is, in such a situation, for the wife's tax-free threshold to be transferred to her husband and hence her allowance will not be allowed to whither on the vine.
Therefore, no couple would be worse off if one partner cannot work.
This could be for married couples and unmarried families with children as well. The latter must be cohabitating but not applicable if there is a separation. The family should be treated as a single unit and both income of husband and wife combined.
There should not be much difficulty in executing this initiative since, in the writer's experience, although a significantly large proportion of husbands are reluctant to disclose their earning to their wives only a small percentage of wives wants to keep their income from their husbands.
Over the last 29 years the burden of taxation has shifted significantly so as to penalise marriage, that is, a married couple and a cohabitating couple are almost equally taxed and both are similarly punished. As a Christian, this commentator regards marriage as serving an important cohesive role in a stable society and should be encouraged.
Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston. Email: firstname.lastname@example.org