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Rethink property tax regime in reform campaign

Published:Sunday | October 23, 2011 | 12:00 AM

Dennis Morrison, Contributor

In the October 18 issue of this newspaper, the mayor of Montego Bay was reported to have told members of the Rotary Club in that city that only 45 per cent of property owners in St James were compliant with respect to property tax. Even though it is well-known that the compliance rate for property tax nationally has been unsatisfactory, this figure would have come as a surprise.

But what was shocking was the further revelation by the mayor that compliance rates in upscale neighbourhoods in the Montego Bay area, where the 'haves' live in luxurious dwellings, fall well below this level. And this is notwithstanding the fact that the valuations used for tax purposes are fractions of market values!

According to the mayor's statistics, in Ironshore, Westgate Hills, and Torado Heights, compliance rates are only 28, 32, and 34 per cent, respectively. In other 'topanaris' residential communities like Coral Gardens and Spring Farm Estate, the rate is just over 40 per cent - all below the average for the parish. This essentially means that the less well-off and the middle class of St James are more conscious of their duty as citizens and show more regard for the law, not what a certain stereotype would suggest.

But those of us from a 'country' background would not be too surprised, for we know that there are no more compliant and reliable citizens when it comes to paying land taxes than the humble, rural folk who generally live by the credo: 'Render unto Caesar the things that are Caesar's'. To these people, security of tenure derives from proof of having paid their taxes, even in cases where the titles may not be in their names, or where titles may not exist.

Land tax off limits?

The mayor's entreaty to the Rotarians for greater compliance brings me to the matter of what appears to be the exclusion of land taxes from the tax-reform proposals being considered by Parliament. These proposals also seem to place the main emphasis on greater reliance on GCT as the primary means of tax collection, on the premise that this will widen the tax base. But if this is a key objective, why shouldn't the reforms be broadened to include land taxes? Wouldn't this be a way to address the issue that the widening of GCT coverage, even with a lowering of the rate, would shift the burden of taxation on to the people at the lower end of the economic ladder?

It is long overdue for Jamaica to enter the modern world where property taxes are based on improved-value basis rather than using unimproved value as currently obtains. In many developed and developing countries that have carried out tax reform in the last quarter-century, this has been a main element of such transformation. Obviously, legislation to facilitate more effective enforcement is an essential component of such reform (this is necessary in any case, and I understand is being seriously pursued).

Stricter enforcement of property taxes would have to be reinforced by tougher rules against squatting, since property owners should not be put under greater pressure to pay taxes when the system sometimes leaves them powerless to enforce property rights. The results of such reforms have generally been positive in other countries, simultaneously leading to significant increases in revenue, more even distribution of the burden of taxation, and improved local services to communities. Our local government system has failed partly because it is deprived of real resources required to provide these services.

Upscale power thieves

In the same way that the stereotype of delinquent property owners has been shot down by the facts, information about the Jamaica Public Service Company's (JPS) non-technical losses shows that, contrary to the popular view, power stolen by people living in inner-city/informal settlements is a small fraction of such losses. Power stolen by other residential users (including middle- and upper-income groups) amounts to nearly four times that pulled off by inner-city residents, etc. In fact, just under 50 per cent of the total power stolen is by these users. Could it be that some of the complaints about high light bills are really reflecting the tightening up by JPS?

The reality of the high cost of electricity (multiples of the cost in regional countries) is, of course, a real source of pressure pushing people to beat the system. Sustained progress in getting the economy to grow will ease this pressure, but lower generating and other costs is what will actually make the difference in our light bills. Where property taxes are concerned, the rates are well below other countries, and hence the case for reform can be justified.

Dennis Morrison is an economist. Email feedback to columns@gleanerjm.com.