Don't tax financial sector - PSOJ
With the Ministry of Finance forecasting that it will collect $10.4 billion from the implementation of new revenue measures in the 2015-2016 fiscal year, William Mahfood, president of the Private Sector Organisation of Jamaica (PSOJ), says the Government should avoid imposing new taxes on the financial sector, arguing that doing so could retard Jamaica's ability to grow.
"You have to be careful that you don't get to a point where you push an industry or a sector too far. As we look at the need for growth, one of the things that we need to have is a very, very, strong financial services sector. That financial services sector is critical. They have to have strong balance sheet to be able to lend money to the small, medium and large business sectors in order to invest in new industries," Mahfood said.
Finance Minister Dr Peter Phillips is to open the Budget Debate in the House of Representatives today. He has already said that more than $8 billion of the $10.4 billion will have to come from new revenue measures and increased compliance.
"The minister needs to be cognisant of that fact that there are businesses and individuals that are already paying large taxes," Mahfood said.
"The financial services sector, we constantly go back to that area for revenues because it is deemed that they make high returns, but the truth is that if you look at the returns on shareholders equity in the financial services sector, over the last 10 years, they have been declining every year as a result of some of the taxes and some of the debt swops," he told The Gleaner.
Assess the compliance measures
Auditor General Pamela Monroe Ellis, in her assessment of the 2015-2016 Fiscal Policy Paper, said the ministry of finance should assess the compliance measures to be undertaken by Tax Administration Jamaica and Jamaica Customs Agency, intended to attain the revenue target, and factor this into the revenue projections, in light of the consistent revenue shortfall.
She noted that there has been lower than budgeted collections from administrative/ compliance activities and said that this may indicate that the ministry "is too optimistic with this measure".
The Government is planning to spend $641.6 billion in the new fiscal year. Revenue and grants forecast amounts to $458 billion or 27.1 per cent of GDP, compared to the estimate of 26.5 per cent of GDP for the 2014/2015 fiscal year.
Tax revenue is budgeted at $411.9 billion or 24.4 per cent of GDP and is expected to account for 90 per cent of total revenue and grants. This forecast for tax revenue represents an increase $34 billion over estimated collections this fiscal year.
Mahfood yesterday said that the Government needs to seriously embark on increasing compliance but he noted that this was unlikely to provide the revenues to plug the hole in the budget this fiscal year. He said going forward, the Government should press TAJ and Customs to account for its inability to collect the revenues, adding: "I don't believe that enough emphasis is being placed on that".
"We cannot, as a country, keep looking at the same sort of small restricted group of individuals and companies to cover the revenue requirements of the country," Mahfood said. "If the bucket keeps going to the well, one day the bottom is going to drop out."
He argued that until the authorities figure out how to improve the compliance levels, "they are going to have to find new and innovative ways of raising the revenues".