Editorial | Case for digital GCT

The Government may report that electronic invoicing of its consumption tax regime is already among its plans for deepening the digitalisation of tax management in Jamaica.

In that event, either Prime Minister Andrew Holness or the finance minister, Fayval Williams – or both – must indicate that Tax Administration Jamaica (TAJ) has been ordered to accelerate the process as one means of enhancing financial flows to the national coffers, while, as the shadow finance minister, Julian Robinson proposed, limiting the need for new tax measures.

They should also set out the framework for the implementation of the project, including a credible timeline for its full rollout, their projected growth in revenues, and expected gains in efficiency. For as sensible as Mr Robinson’s idea is, it is unlikely that, as has been shown in almost all jurisdictions where such such systems have been implemented, a real-time electronic invoice could happen in a single financial year.

When Hurricane Melissa hit Jamaica four-and-half months ago, it left damage, according to the updated government data, of US$12.2 billion, or 56.7 per cent of the island’s GDP. The latest figure, provided by Minister Williams in her Budget speech last week, is nearly 42 per cent higher than the Government’s previous estimate of US$8.6 billion.

In the wake of the hurricane, real economic output was projected to decline by at least three per cent for the 2025-26 fiscal year (which ends on March 31) before beginning a rebound in the new financial year. Faced with post-hurricane fiscal pressures, Minister Williams announced J$18 billion in new taxes as well as the continuation, for another five years, of the annual extraction of the J$11.4 billion from the National Housing Trust (NHT).

PRO-CYCLICAL

The Opposition has argued that the Government’s approach to the crisis is too pro-cyclical, or depends too much on government spending to stimulate economic activity. Instead, Mr Robinson has said, rather than imposing taxes, the money should have been left in the hands of businesses and hard-pressed consumers in an effort to induce additional private spending.

He insisted that the Government could close most of its fiscal gap with limited additional borrowings and greater efficiency in tax collection, particularly with respect to the 15 per cent general consumption tax (GCT), essentially a VAT that is applied to most goods and services.

In the new fiscal year, the administration expects to collect $318.15 billion in GCT, or four per cent more than last year’s projection. It also expects an additional J$112.6 billion in special consumption taxes – a 12 per cent hike. So combined, the two taxes will raise over J$430.7 billion.

Mr Robinson estimated that conservatively, the Government faced a two per cent undercollection (some people believe that the leakage is multiples of that amount) in the consumption taxes because of “weaknesses in the current manual system” of reporting, reconciling and remitting payments to the tax authorities. This, on its own, the shadow finance minister said, would add $8.6 billion to the treasury.

“That is money the Government is already entitled to collect,” he said. “It is simply not collecting it because the system it relies on is not equipped to catch what slips through. An electronic invoicing system closes that gap, and it does so without a single new tax on a single Jamaican.”

ELECTRONICALLY REGISTERED

Against that backdrop, he suggested that Jamaica adopt a system pioneered in Chile in 2003, increasingly used across Latin America, and in place in more than 80 countries. Rather than periodically having to file and reconcile internal records of consumption tax obligations with tax authorities, each transaction by a business or vendor is electronically registered real-time with the tax authorities – not unlike what happens when a purchaser completes a transaction on a point-of-sale system and that information is registered immediately as a credit on the vendor’s bank account and a debit for the buyer of the good or service. Except in this case, the information flow would be between the GCT/SCT (Special Consumption Tax)-registered individual or company and TAJ. The same would apply in respect of receipts for cash transactions.

This electronic, real-time reporting prevents, or limits, leakages. Over time, it lowers transaction costs to firms by reducing paperwork, automating compliance, generally streamlining GCT reporting.

The arrangement would not be entirely breaking new ground in Jamaica. Already, companies can file tax returns or remit statutory payments electronically. Individuals, too, can complete some tax-related transactions electronically such as paying property taxes and for their motor vehicle and driver’s licences.

However, implementing the electronic invoicing system would require bringing online all GCT-registered vendors, matching their unique registration numbers to the related databases, and ensuring that they have the appropriate devices to complete the digital transactions. This could meet some resistance from small operators. But studies by the Inter-American Centre for Tax Administration (CIAT) and the Inter-American Development Bank (IDB) show strong compliance once the systems enter the mandatory phase. Revenues also rise, in all cases at levels higher than Mr Robinson’s projected two per cent.

The project would require sensitisation and public education, including, perhaps, a pilot phase. Nonetheless, it should be fast-tracked.