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Government refining formula, financing for $1.5M tax break

Published:Tuesday | April 19, 2016 | 2:47 PMMcPherse Thompson
Minister of Finance Audley Shaw

Finance and Public Service Minister Audley Shaw said the Government was in the process of working out the formula to be used in the implementation of its plan to increase the personal income tax threshold to J$1.5 million.

He said they were also trying to resolve the issue of how to finance the reform package, which by some estimates, if implemented, would result in a loss of state revenue upwards of J$30 billion per year.

Asked if he has identified a specific source of funding for the tax proposal, Shaw said, "We have identified more than one specific area, and the only issue now is to sort out the formula, the most reasonable formula to use because you don't want to solve one problem and create another one."

He added, "In the same way we are smoothing out the question of how we apply it, so, too, we must smooth out the issue of how we finance it."

However, in a brief interview on the margins of the Spring Meetings of the International Monetary Fund (IMF) and World Bank Group in Washington, DC, last Saturday, Shaw declined to reveal any of the potential sources of funding, stating that "We are feeling pretty confident about that and I leave a little something for the Budget Debate."

Shaw is scheduled to open the debate on May 12, during the same period when an IMF team comes to Jamaica to undertake the 11th and 12th review under the four-year economic support programme.

income tax threshold

The minister, who led a delegation to the Spring Meetings which ended on Sunday, April 17, said that during the visit he would discuss with IMF officials the arrangement for changes to be made to the income tax threshold.

"We have been working closely with them in that regard to benefit from their own experience and to look at the best method of implementing it so that we don't inadvertently ... by solving one problem we create others. ... We want to make sure it's as smooth and as equitable across the board as possible," he said.

"Against that background also, we will be working with them in other areas," the minister said.

"We have more tax reform to do after the issue of the tax threshold is dealt with, the so-called $1.5 million plan. We have continually said, and we will continually repeat, that all the efforts that we are making is to make life a little bit more comfortable for our workers in Jamaica," said Shaw.

"At the same time, we are looking for a giveback from the workers. What's that giveback? Greater productivity, to make sure that whatever is your task, whether you are in the public sector or the private sector, you want to do your best, you want to pursue excellence," he said.

"If a public-sector worker has something on his desk about approval that is pending that can take a day, don't let it take a month. If it can take an hour, don't let it take a day, and if it can take a week, don't let it take six months or one year because all of those things combined will militate against investment, militates against growth, militates against job creation and wealth creation, and that's how on the path to prosperity we've got to work. It's not a free ride to prosperity, you know," he said, mimicking the Jamaica Labour Party's election slogan, 'Road to Prosperity'.

"It's productive work to prosperity, good attitude and unselfish work," he added.

impacting productivity

However, in an article published in The Gleaner four days before the February 25 general election, businessman Joseph M. Matalon, who chaired the Private Sector Working Group on Tax Reform, said the proposal as structured will create challenges for employers in rewarding and motivating staff and will adversely impact productivity.

He cited reasons to show that the proposal in its current format is inequitable and distortionary and would disincentivise persons earning marginally below J$1.5 million from seeking additional income as they would become worse off until their income rose sufficiently to offset the additional tax.

The tax reform proposal has three components: full exemption from income tax for persons earning income up to J$1.5 million per annum; persons earning income above $1.5 million and less than J$5 million per annum will continue to be taxed at 25 per cent on their income in excess of the current tax-free threshold of J$592,800; and persons earning income in excess of J$5 million per annum will be taxed at the rate of 25 per cent on their entire income as the tax-free threshold of J$592,800; from which they currently benefit will be withdrawn.

Shaw said the Government has given the IMF the assurance that it will continue "diligently" with the programme, which comes to an end in March 2017.