More than $16b needed to fund second round of $1.5m tax threshold
The Jamaican Government may need to impose revenue measures in excess of the
$16 billion required to fund phase two of the personal income tax reform, which will see the threshold move to $1.5 million at the start of fiscal year 2017-18, according to updated documents submitted to the International Monetary Fund (IMF).
Noting that phase two of the personal income tax reform is estimated to cost an additional 0.9 per cent of GDP or about $16 billion, the Government said, in the September 2016 memorandum of economic and financial policies, that "we are currently exploring options for offsetting revenue measures for implementation in the FY2017-18 Budget, with support from the IMF".
It added that "ensuring revenue neutrality of the overall tax reform package, however, could require revenue measures in excess of 0.9 per cent of GDP, given the extra social transfers needed to shelter the purchasing power of the most vulnerable from the shift from direct to indirect taxes."
The first phase of the exemption threshold for the personal income tax took effect on July 1, 2016 when the government increased it to just over $1 million from $592,800, the same time as the marginal tax rate for earnings above $6 million was increased from 25 per cent to 30 per cent.
The Government also said that phase one of the reform is estimated to cost 0.9 per cent of GDP this fiscal year and offsetting revenue measures implemented include a $7 per litre increase in special consumption tax (SCT) on fuels, an increase in the departure tax to US$35, increase in the SCT on cigarettes and implementation of a new liquefied natural gas taxation regime.
The Government noted that in the context of the shift from direct taxation, "we will also strengthen property taxes, which have been shown to be both progressive and efficient. The new rates and bands for property taxes using the 2013 land valuations will be completed and submitted to Cabinet for approval by end-December 2016", a new structural benchmark under the economic support programme with the IMF.
The Government said it will also be exploring the scope for environmental taxation, including a carbon tax that will help Jamaica fulfil its Paris commitment by 2025.
In addition, a comprehensive tax reform package, with due account to social protection, that extends beyond funding of phase two of the personal income tax reform will be put in place starting in fiscal year 2017-18.
Last month, Finance and Public Service Minister Audley Shaw said the government's $16 billion funding of the second phase of the personal income tax threshold's move to
$1.5 million at the start of fiscal year 2017-18 would not be done through an automatic tax measure.
"The issue here is not an automatic tax measure, although, as I indicated ... if it has to come, it will come," he said.
The IMF executive board, in approving the 13th review under the extended fund facility with Jamaica, said the rebalancing from direct to indirect taxes provides an opportunity to improve compliance and increase incentives for production and effort.
"At the same time, protecting the poor and vulnerable is a high priority, which requires developing and implementing a well-designed plan to enhance Jamaica's social protection framework to ensure inclusive and equitable growth," the board said.