Wed | Nov 21, 2018

Nigel Clarke | Jamaican tax revenues at global benchmark

Published:Friday | October 19, 2018 | 12:00 AM

The Gleaner editorial of October 15, 2018, titled 'Tax reform back on agenda', referencing comments made by University of the West Indies economist Damien King, quoted tax revenues as a percentage of gross domestic product (GDP) at 24%. This is not a current figure.

The Fiscal Policy Paper tabled in Parliament in September 2018 reported tax revenues for the period 2015-16 to 2018-19 as percentage of GDP as:

- 2015-16 - 24.4%

- 2016-17 - 25.6%

- 2017-18 - 25.7%

- 2018-19 - 25.9% (est)

The shift from direct to indirect tax reform in 2016-17 and 2017-18 broadened the tax base of the economy, replacing, in a revenue-neutral way, "difficult-to-capture direct income taxes" with "difficult-to-escape indirect taxes".

With this reform, those in the informal economy and otherwise who previously would have not participated in the direct approach, find it difficult to escape indirect taxation. This largely accounts for the improved performance as a percentage of GDP.

However, when comparisons of tax to GDP are made internationally, one has to include earmarked statutory deductions paid to the HEART Trust and the NHT, which together represent approximately 2% of GDP.

When this is added to the figure above, tax revenues as a percentage of GDP in Jamaica approximate 28% of GDP.

It is important to point out the error as the editorial presented a line of argument that was based on erroneous data in the Damien King tweet.

While the editorial also quoted the global average at 28%, without reference beyond a tweet, the IMF Third Review, under the precautionary standby arrangement, presented comparative data that suggests that tax revenues as a percentage of GDP in Jamaica are among the highest in the Caribbean region.

This is not optimal for the maximisation of production and economic activity, and the Government of Jamaica is committed, over time, to improving the tax competitiveness of the Jamaican economy as measured by this statistic.

- Dr Nigel Clarke is the minister of finance. Email feedback to columns@gleanerjm.com.