Thu | Sep 21, 2017

Garth Rattray | I’m confused about Plan B

Published:Monday | May 23, 2016 | 5:00 AM

Number three on the Jamaica Labour Party's 10-point plan for growth and job creation stated: "We will reform the tax system. This means leaving you with more of your income to support your family. This means lower taxes and a business-friendly tax system. We will again reduce transfer taxes, stamp duties, and estate taxes. We will get rid of PAYE tax for everyone who earns a basic salary of J$1.5 million or less. When workers take home more money, they spend more. More spending means more jobs."

It was promised that everyone paying PAYE income tax who earns J$1.5 million or less would no longer pay income tax. Some would take home an additional J$18,000 monthly and everyone earning above the J$1.5 million would pay income taxes on their regular salary at the existing rate of 25 per cent. This promise garnered votes in the general election.

But such a plan could have encouraged salary cuts and discouraged overtime work and upward mobility. It could also have caused some supervisors and managers to take home less than their subordinates.

 

WHAT OF NO NEW TAXES?

 

There was a promise of no new taxes to fund this selective windfall. Somehow, substantial monies would be accessed from somewhere to finance the plan. I was confused because I could not figure out where on earth this would come from. In fact, as it turned out, no one could figure it out, not even the people who dreamt up the plan.

At first, we were told that it would be financed by the existing 'gas tax'. But, even I knew that the 'gas tax' was inaccessible. Strange that the people in the know did not know of this. Stranger still that the people in the know were on committees that delved very deep into such matters but still did not know of this. The parliamentary records show that the people in the know must have known, but now did not know.

So, Plan A was unceremoniously and quietly abandoned and here we are at Plan B, which was announced at the opening of the Budget Debate in the House of Representatives. The Gleaner (May 13, 2016): "Minister of Finance and Public Service Audley Shaw yesterday unveiled a modified version of the Jamaica Labour Party's (JLP) campaign promise of a $1.5 million income tax break, which will now apply to PAYE earners across the board."

The long and short of it is that there is to be a phased-in raising of the income tax threshold from the current $592,000 per year to $1.5 million over the next two financial years. And, instead of the promised $18,000 more take home monthly, some might take home $8,490 more.

 

EVERYONE HAS TO PAY

 

Since 90 per cent of Jamaica's 1.1 million workers will no longer pay PAYE taxes, everyone will pay for Plan B. Those earning over $6 million per annum will now have to pay more income taxes at the rate of 30 per cent, up from the current 25 per cent. So we are back to a sliding-scale income tax system. Immediate tax increases have been imposed on departure tax (from the current US$14, leaping to US$35), tobacco products and fuel (an additional J$7 for every litre).

Sudden, overnight taxation always confuse me. I thought that in order to increase taxes there would have to be the Budget Debate of some sort, then it would have to go before the Houses of Parliament and, if approved, it would be signed by the governor general and then gazetted. Perhaps I am mistaken.

Increases in fuel costs will initiate a spiral of inflation. Even though the minister of finance quoted a Bank of Jamaica estimate of an extra 0.2 per cent (on the estimated 5 per cent), I wonder about the compounded and cumulative effect. Fuel prices have come down, but note a Gleaner headline of May 17, 2016: 'Oil prices will rise again, Biden warns Caribbean'.

I am confused. I did not know that taxes could be so easily, unilaterally and immediately increased. And, I'm unconvinced that raising the income tax threshold and having to increase other taxes to support this will, in the long term, result in a better life for most of us.

- Garth A. Rattray is a medical doctor with a family practice. Email feedback to columns@gleanerjm. com and garthrattray@gmail.com