JDX, tax packages will compress economy, says PwC expert
Brian Denning, tax expert and partner at Pricewaterhouse-Coopers Jamaica. - file
HE DEBT exchange and new taxation charges will result in a compression of the economy and an effective reduction of revenues from taxation, according to tax expert Brian Denning, who says the fiscal initiatives announced in the past nine months would effectively squeeze $82 billion from the system.
"The $42 billion in tax packages implemented in April, September and December 2009 and the $40 billion cut in interest payments will remove an aggregate $82 billion from the economy, which will result in a contraction," Denning told the Financial Gleaner, expanding on a presentation he made last week at a capital markets conference in Kingston.
"It is taking money out of the economy, and so there is less for consumption, less for savings and less for other economic activity. It will reduce revenue. This is the knock-on effect of the JDX (Jamaica Debt Exchange) and the new taxes combined."
Denning, a partner with Price-waterhouseCoopers, also predicts that the end result would be increasing pressure on tax revenues to fund government activity to the detriment of investments.
Already devoid of comparative advantage on taxation, Jamaica is ranked the 10th worst tax jurisdiction, placing 174 of 183 economies in the Doing Business survey.
Its major trading partners in North America, Canada and the United States, are ranked 28th and 61st, respectively; the United Kingdom does even better at 16, while in the region, Dominican Republic is ranked 70th, St Lucia, 40th, and Trinidad and Tobago, 56th.
"Our direct and indirect tax rates are among the highest in the region and the world," said Denning, noting that Jamaica has little room for new tax measures and little fiscal space for new taxation policies.
What is required, he said, is not new taxes but better systems to collect the revenues from the non-compliant and businesses "operating under the radar screen".
"In the short term, the solution lies in reform to tax administration framework, the collection of taxes lawfully due. Our path to sustainable economic growth must be paved with tax receipts."
The Bruce Golding administration is predicting that the debt initiative, other fiscal programmes and the expected US$1.25 billion of support from the International Monetary Fund (IMF) will break the back of the recession and deliver 0.3 per cent to 0.6 per cent growth in GDP this year.
But, noting that the Jamaican economy is one weakened by years of stagnation, low productivity and global events, the tax expert said he believed that economic initiatives being pursued will also see a further downturn in economic activity from which taxes could come.
The IMF also predicts that the Jamaican economy will continue to contract, though marginally, this year.
Denning is not, however, against the programmes, saying of the IMF agreement that it is "a lifeline we cannot afford not to grasp", and could provide the fiscal space the country requires for comprehensive tax reform.
"The negotiation with the IMF for balance of payments support and to open the door to cheaper multilateral funding, the implementation of fiscal responsibility laws, the debt ex-change, and public-sector reform are all part of a broader economic programme to get our fiscal house in order," Denning said.