Sun | Jan 21, 2018

Jamaica, IMF discussing how to fund $1.5m tax plan

Published:Sunday | April 17, 2016 | 12:00 AMMcPherse Thompson
Uma Ramakrishnan, IMF mission chief to Jamaica.


Jamaican government officials were having discussions with the International Monetary Fund (IMF) this weekend about the remaining year of the 48-month economic programme, including how to make the $1.5 million tax threshold plan work without disrupting the agreed reform agenda.

IMF Mission Chief to Jamaica, Dr Uma Ramakrish-nan, said the Andrew Holness-led administration, when they met with a Fund team in its first week after taking office in late February, committed to seeing the programme through to the March 2017 deadline.

"So in that sense, we are discussing with the Government how to make this tax plan work within the parameters that have been agreed under the programme," Ramakrishnan told Sunday Business on Friday in an interview on the margins of the Spring Meetings of the IMF and World Bank Group.

She said there is still a 7.0 per cent primary surplus target that has to be generated for fiscal year 2016-17 based on the programme, "and so the budget envelope in that sense is very clear."

The mission chief said a Jamaican Government delegation "is in Washington now" and will participate in the ongoing discussions during meetings with them on Saturday and Sunday.

Asked if Jamaica had indicated from where it would source the funds to finance the new tax threshold, Ramakrishnan said only that she knew there was a lot of discussions in the public domain about how it would be done.

"For us it is premature to disclose anything because nothing has been decided," she said, adding that she did not want to speculate about what the Government might be thinking.

"All I can say at this point on that is that discussions are continuing."

Asked how the commitment to social spending would affect the programme if consumption taxes were increased to close the financing gap for the new threshold, Ramakrishnan said: "It is speculative at this point to say what taxes are going to change. We all know that there is a menu of tax measures that can be considered. Where exactly the chips are going to fall, it's really hard for me to tell at this point."

Consumption taxes

can hurt poor

But she noted that based on the experience of other countries, consumption taxes can hurt social spending and are more likely to affect the poor.

In that sense, she said, some thought would have to be given to that dimension if increasing consumption tax was an option for the Government.

As to whether implementation of the $1.5m tax plan could potentially contribute to derailing the IMF programme, Ramakrishnan said, "I have to go back to the discussions we had with the prime minister when we visited Jamaica in the first week of March after the new Government took office."

She said: "We have heard of his commitment to keeping the IMF programme going forward and that is the basis on which we are continuing discussions. We do want to see this programme succeed, and our goal is to see how to make things work within the context of the programme."

The mission chief said public debt still remained high, fiscal consolidation remained important, and stabilising the economy has to remain an objective.

"So within the different objectives of the programme, that's really the discussion and the focus. We believe that the Government is committed to moving things forward, and we are waiting to see how the various aspects will piece together," she said.

Commenting on whether the country can afford to give up revenue at this time by restoring tax incentives to companies

listed on the junior stock exchange, Ramakrishnan signalled that the IMF thought the restoration of the incentive was not a good idea.

"It shouldn't be a surprise to you that we are not a big fan of giving tax incentives. The main reason why tax incentives typically don't work, or from our standpoint why we don't encourage it, is that it sometimes distort decision-making," she said.

"And in this case, by leaving incentives for the junior stock exchange, it may disincentivise small firms from growing in order to keep the size small so that they can maximise on the incentives that they are getting."