Saying the main objective of tax reform in Jamaica should be to stimulate economic activity, a local think tank is arguing for group companies to file consolidated GCT returns and that waivers be eliminated.
Caribbean Policy Research Institute (CaPRI) research officer Anika Kiddoe said maximising the effectiveness of tax-reform efforts "requires clear priorities", given the stagnation of the economy and the negative implications of that environment for sustainable revenue generation.
"Having examined the findings and recommendations of the most recent comprehensive reviews of the Jamaican tax system, CaPRI has concluded that the top three priorities for growth-focused tax reform in Jamaica should be to simplify the tax system, decrease reliance on direct taxes and eliminate the inefficient and ineffective use of tax concessions," Kiddoe said in a presentation to the Parliamentary Tax Reform Committee chaired by Finance Minister Audley Shaw.
In a presentation supported by CaPRI director Dr Damien King, the researcher said the Green Paper on tax reform was consistent with proposals to simplify the system and reduce reliance on direct taxes. However, she argued that, notwithstanding the broad consistency, some straightforward steps to simplifying the tax system have been overlooked, such as extending the period of validity of Tax Compliance Certificates or TCCs for taxpayers with a history of compliance and permitting group companies to form "GCT groups" that could file a single consolidated return.
Kiddoe submitted that since GCT applies only to value added, implementation of this proposal would entail no loss of revenue for the Treasury.
While acknowledging that the reforms propose a reduction in income-tax rates and a raising of the personal income-tax threshold, she maintains that the proposal to reduce the rate of GCT implies that a further reduction in reliance on income tax could be effected by foregoing the GCT reduction.
She argued that this would effect a stronger shift from the easily evaded income tax to the harder-to-evade GCT.
weakness of the programme
"A weakness of the reform programme outlined in the Green Paper is the failure to articulate a more measurable commitment to the reduction of tax waivers and tax incentives," she said.
The researcher also argued in favour of an IDB proposal to get rid of discretionary waivers, and against the paper's stated intention to "significantly" reduce them.
"This cannot be reconciled with CaPRI's conclusion that eliminating the inefficient use of tax concessions should be the first priority of growth-focused tax reform," she commented.
Kiddoe said policymakers need to accept that while concessions provide an incentive for targeted recipients, they are simultaneously providing a disincentive for the rest of the economy by necessitating higher overall tax rates and encouraging the exploitation of the tax code by investors.
CaPRI has estimated the potential revenue gain from eliminating tax concessions at 3.9 per cent of GDP, which would boost revenue by some 15 per cent.
The elimination of discretionary waivers would raise revenue by 2.0 per cent of GDP, which would be sufficient revenue to afford both a reduction of the corporate income tax rate, from 33 per cent to 25 per cent, and a doubling of the income tax threshold, the researcher told the tax-reform committee.