Ronald Mason | No room for the poor
The election of February 25, 2016 saw a change in government that afforded the Jamaica Labour Party (JLP) an opportunity to present a Budget for fiscal year 2016-2017. What we got in that was a renewed emphasis on indirect taxation.
Indirect taxation is where the taxes are 'price quoted'. These indirect taxes are also the only means of collecting from the poor. It is a sound principle that every individual should pay something. The poor also utilise the services that can only be provided by the State. Police services, national defence, and foreign relations come readily to mind.
The poor are always exempted from paying direct taxes, as the very nature of being poor infers that they do not earn enough to pay taxes. Here, in Jamaica, the poor among us receive free health care and PATH benefits. They can only have taxation applied to them through indirect means. The burden of indirect tax is paid in small amounts and only when making purchases.
The price of the item includes the tax. For example, when you go to purchase petrol, the price per litre is heavily laden with tax. It reduces the visceral opposition to high tax. If the poor never buy gasolene, they would not pay the tax, compared to the rich, who frequently purchase fuel and thus pay the tax with each trip to the gas station. We need to remember, however, that it is the ultimate consumer - rich, poor or middle-income - who ultimately pays all the taxes. Companies do not pay taxes; consumers do.
The Budget, as presented, has created illusions that those who earn $1.5 million per year will be exempt from the pay-as-you-earn (PAYE) taxes. This Budget sucker-punches those who were previously exempt - that is, those earning $592,800 or less. They have no new money to get, but they will have to pay for the increase of gasolene, LNG and HFO. They will pay it in higher taxi and bus fares; and higher cost of goods and services. They will have to pay it in the sin tax reflected on cigarettes. All these taxes will be very easy for the State to collect.
These taxes are easy to collect, as all retail outlets have now become honorary tax collectors for the Government. These taxes cannot be evaded, as they are part of the price charged. They are imposed primarily on the necessaries of life and yield a large amount of revenue because people must buy and use these things. There is no effective substitute in Jamaica for gasolene, and the use of heavy fuel and LNG in producing electricity.
Electricity is such a vital necessity in Jamaica, and it is subject to widespread theft. The poor will have to absorb it all. Contrast this with the fuel bill for somebody in the upper-income bracket. They can trade in the gas-guzzling SUV for a more fuel-efficient, smaller vehicle. They can trade in the electric water heater for a solar water heater, or they can install solar and wind systems. This will result in savings for them.
This Budget, again, is not part of comprehensive tax reform. It's also not part of comprehensive tax reform. It's also not shy about indicating that an even bigger tax package is on the horizon for fiscal year 2017-2018.
COMPREHENSIVE TAX REFORM
However, one must be aware that a significant economic event will take place in Jamaica by 2017-2018. The extended fund facility from the International Monetary Fund (IMF) would have run its full course and the Government should have much more flexibility in crafting a Budget. We need comprehensive tax reform, coupled with structural changes, of which productivity must be incentivised. The retooling of manufacturing capacity and coordinated measures aimed at increasing security are all desperately needed. The Government of Jamaica must find a way to harness the large underground economy through national regulation.
It cannot be that wholesale businesses operated by immigrant merchants are the subject of widespread belief that they do not pay GCT receipts over to the Government. It cannot be business as usual, where we have different approaches to taxing income with varying rates.
We need, as a country, to take a uniform approach to earning income, dividend income, return on investments, and to have some certainty as to their tax treatment. It is of great concern when the minister of finance will stress in a Budget presentation that these new tax brackets will apply only to employment income. One is not likely to find that society will move and act as a unified whole. Some people benefit and others are significantly disadvantaged by the same tax system.
It is time for us to use everything at our disposal to have each of us accepting that we have a stake in this country. It is bad enough that the educational, health-care, and judicial administrations will have built-in differences dependent on who you are and where you are from.
I wonder, just wonder if we will ever get anything that benefits the poorer members of the population.
- Ronald Mason is an attorney-at-law and Supreme Court mediator. Email feedback to firstname.lastname@example.org and email@example.com.