GOJ to skew tax system towards consumption
The Government has signalled its clear intent to move towards consumption-based taxes to drive revenue for the treasury.
Concurrently, the corporate income tax rate will initially be harmonised with personal income tax at 25 per cent. Both rates may eventually be reduced further over time.
Consumption taxes allow individuals to work without a levy on their incomes and then choose their level of taxation based on the type of goods they consume, said the White Paper on Tax Reform tabled in Parliament by Finance and Planning Minister Dr Peter Phillips last week.
"Consumption taxes are less harmful to economic growth than direct taxes on activities such as work, and, therefore, the Government intends to move towards more dependence on consumption-based taxes," it said.
It notes that in that context, there is scope for a further broadening of the General Consumption Tax (GCT) base.
However, the move comes with the proviso that the extent to which the transition can be made will likely depend on the performance of revenue, improvements in gross domestic product (GDP) and the sectors in which those improvements occur, as well as a reduction in poverty overall.
A somewhat similar prerequisite is attached to the Government's plan to reduce the standard rate of GCT, currently at 16.5 per cent on most items on which it is levied, over the medium term through to 2015-16.
"The performance of revenue and the general availability of resources to finance the budget will determine the pace and timing of reduction," the White Paper said.
The same applies to arrangements to further reduce personal income tax from 2013-14 onwards. According to the White Paper, "Increased tax compliance will facilitate further conjoint reductions in the corporate and personal income tax rates, further increases in the annual general personal income tax threshold and further lowering of the standard GCT rate."
Corporate income tax will be revised from 33.33 per cent to 25 per cent as at January 1, 2013. The personal income tax threshold has been set at J$507,312 for fiscal year 2012-13.
The policy document also solidified plans to retain new taxes imposed this fiscal year, including the modified asset tax.
"The removal of the asset tax may be reconsidered in the future but other initiatives, like the guest accommodation room tax and airline passenger levy, do more than meet short-term revenue needs as they facilitate broadening of the tax base and enhancement of the buoyancy of the tax system," said the White Paper.
The Government will also be modifying the property tax regime, given what it said was its underperformance because of indifferent compliance and outdated valuations.
"The current system of the property tax encourages non-compliance because there are no serious consequences for non-payment. The Parliamentary Committee (on Tax Reform) recommended that with respect to property tax, the Government will simplify and streamline the process of selling property in order to execute a lien to recover outstanding property tax within the medium term," the paper said.
In addition, it said the current law prohibiting indexing of property between revaluations will be changed. Instead, property value indices will be created on at least a biannual basis and used to adjust all property values between revaluations.