Briefing: Strengthening the tax system - Tax collection continues to be a problem
THE INTERNATIONAL Monetary Fund (IMF) team is in the island for the seventh quarterly review of the Jamaican economy under the extended-fund facility.
Jamaica remains committed to the programme and has been putting measures in place to meet each quarter's requirements.
However, tax collection/compliance continues to be a major problem and Jamaica failed to meet the 7.5 per cent primary surplus target for the quarter ending March.
Jamaica continues to underperform, as it relates to collection of tax revenues. Many large firms in Jamaica do not pay tax on profit, yet the Government has introduced a non-progressive minimum business tax. This, along with major tax reform, is expected to improve fiscal performance.
What tax reforms are being implemented?
To further strengthen the tax system, the Government has attempted to;
1 Simplify the annual tax-return filing for self-employed, via implementing a single form (S04) available on the Tax Administration Jamaica (TAJ) website since December.
2 Prepare a permanent legislation for the minimum business tax, which was tabled in Parliament in March.
3 Establish a modernisation programme office in Parliament to manage the implementation of the tax-reform process. The structure and management process through which it operates, are still being reviewed to improve governance and link with the TAJ.
4 Tabled legislation regarding the establishment of a revenue-appeals department as a separate, independent entity, which is expected to be adopted this month.
5 Implementation of the GENTAX integrated tax software package since February 2015.
6 Prepare and estimate the revenue-compliance gap for general consumption tax, to provide a basis for measuring the impact of administrative reforms and assisting compliance-improvement initiatives.
7 Review these reforms to ensure and explore options, with the help of the World Bank, to simplify these processes and reduce bank fees when making and receiving tax payments.
What else have they been working on?
According to the latest IMF country report, important follow-up reforms to the tax structure are needed to improve the consistency of Jamaica's tax-revenue receipts. Property tax reform tabled in February should have been implemented by April.
The reform includes amendments to the Property Tax Amendments Act and the Tax Collection Amendment Act, to publish the names, valuation numbers, addresses and amounts owed of outstanding delinquent property tax owners in the Jamaica Gazette, daily newspapers, broadcast media or a government of Jamaica website, subject to court proceedings, and allow for the posting of assessment notices in these wide array of media as well. Amendments to the Land Valuation Act to provide for the interim adjustment of land values in periods of no more than two years, to take account of change in economic situations and or change in the use of properties.
How about the next
For the 2015-2016 financial years, the IMF has requested, in collaboration with the Inter-American Development Bank, an assessment of the tax reform, thus far, to verify if it is necessary to widen the tax base to create room for lower tax rates in the near future. The existing or proposed tax system will also be reviewed as it relates to technological advancement or those aimed at attracting foreign investment. The TAJ is expected to identify priority areas for further tax reform to be considered in 2016-2017. Planned improvements to the reporting of tax expenditures and their expected cost to fiscal policy is forthcoming.
How do they plan to strengthen tax compliance and custom administration?
A tax compliance plan within a risk-based model is being prepared for implementation. Additional steps to improve how the Government communicates its strategy on reporting requirements for taxpayers, employers and third-party information is pending.
Additionally, an extensive analysis of the tax-compliance gap is necessary as well as to develop and implement an information-matching and forensic data-mining project. The zero rating under the general consumption tax (GCT) for government purchases should have been implemented from March.
There are also plans to hire 30 auditors to the large taxpayer administration in an effort to double the number of government tax audits and to make sure at least 95 per cent e-filing and e-payments are properly accounted for.
The plan is also to write off all income tax, GCT and special consumption-tax debts that have been categorised as uncollectible, based on the results of risk-rated stress tests.
The Customs Act is expected to be amended to facilitate the introduction of a modern integrated customs-management systems consistent with international standards and best practices.
n Dr Andre Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on twitter @DrAndreHaughton; or email editorial