Fri | Sep 22, 2017

Editorial | An end to Nicodemus-style taxation

Published:Thursday | May 11, 2017 | 5:00 AM

Audley Shaw, the finance minister, and the leader of the political Opposition, Peter Phillips, are in accord on a rare point: the need for predictability in taxation policy.

"We have to embrace the opportunity to calibrate tax policy," Mr Shaw said in Parliament last week, "so that it doesn't cause unnecessary shocks and surprise in the system," which might then affect the ability of businesses to plan strategy.

Earlier, Dr Phillips had highlighted "predictability in the tax regime" as among the most desired policy characteristic sought from countries by domestic and foreign investors when they are about to risk their capital.

Mr Shaw recently skirted the dangers he fears when that predictability is wanting.

When the finance minister announced a J$17.5-billion tax package in March, the measures included a 10 per cent or J$110 per litre increase on the general consumption tax on pure alcohol. Ricardo Nuncio, the CEO of the local brewer, Red Stripe, a subsidiary of Holland's Heineken, declared the tax to be "a big surprise" to his company.

He warned that it might upset the company's planned US$20-million investment to upgrade their facilities. Other spirit manufacturers, too, had similar dark warnings. Happily, none of these has materialised. And hopefully, none will.

But the need for predictability is not only with firms. Individuals and households, as Mr Shaw would be aware, have similar concerns and tend to have less insulation than firms with which to absorb taxation shocks. While firms might seek to offset higher taxes by raising prices, fixed-income employees don't readily have their wages raised.

Mr Shaw and the administration ought not, therefore, to have been surprised by the rebellion against the big jump in property taxes in some cases by over 1,000 per cent initially imposed as part of the revenue measures. The Government attempted to pass the hikes off not as real increases, but merely the result of implementing rates based on revised property values arrived at more than a decade ago. The Government, nonetheless, rolled back the rates, although, in most instances, they remain substantially higher than before.

All of this brings us back to Peter Phillips' observation of what is to be done to encourage predictability in taxation policy: the re-establishment of Parliament's taxation committee. It is an idea which Mr Shaw said he is willing to consider.

 

BEYOND CONSIDERATION

 

We do not believe that it is a matter to be considered, but, rather, executed. For, as Dr Phillips conceded, governments of either party have "by surprise" imposed taxes without consultation, or the benefit of feedback from stakeholders.If the tax committee were in place, for instance, there might have been some discussion about the property tax hikes before their announcement as a done deal and the administration might not have been forced into an embarrassing walk-back. Moreover, the oversight might foster an environment in which policy discussions need not be partisan, and governments can adjust property taxes in accordance with the regime, without deep fears that the changes being exploited are for political gains.

Further, for the proposed approach to have greater value, tax proposals can't be unveiled on the eve of their implementation, with little time for debate, for the tax committee to conduct hearings at which critical stakeholders may give evidence. Such proposals have been agreed to before, but not implemented. Hopefully, it will happen this time.