LETTER OF THE DAY - Don't forget tax refunds

THE EDITOR, Sir:

By the end of the year of assessment 2012, some taxpayers, even if employed through the Pay As You Earn (PAYE) system, will be required to file tax returns.

The minister of information, in a recent response to some taxpayers who complained of being unfairly targeted, stated that these persons belonged to a target group of professionals which include doctors, accountants and engineers, among others.

The genesis of targeting a group of professionals for paying income tax dates back to the Jamaican Tax Structure Examination Project. That project, conducted between 1993 and 1997, found that the major form of tax evasion in Jamaica was among self-employed professionals.

A sample of professionals listed in directories showed that only 22 per cent were within the income tax net. It was not ascertained from the research whether some of the professionals in the sample were employed in the PAYE system and would, therefore, not be required to file a tax return, unless they had additional income.

Furthermore, professionals on the PAYE system who gained income from their profession, in addition to income from employment, may mistakenly believe that they discharged their liability through the PAYE system. Requirements for filing or writing their demand for tax will ferret out the additional income, and by this it is hoped that additional taxes will be due and paid.

However, the rules of expenses laid out for incurring the income held and the additional income can conceivably result in a lowering of taxable income and even the refund of taxes.

Crunching the numbers

Suppose a medical doctor invests $5 million in setting up an office while being employed under the PAYE system during a particular year of assessment. If in that same year, he generated $1 million in additional income and paid out $750,000 in overheads of rent, utilities, salaries and materials used in his private practice, on the face of it he would have generated $250,000 in additional taxable income.

But when 30 per cent of the amount invested in fixed assets, which is $1.5 million, is computed for initial and annual allowances for wear and tear of his assets, he would have made a loss of $1.25 million and would be entitled to a refund of tax of $312,500, provided this amount was paid through the PAYE system.

When the reform is viewed in the light that the tax system will be fair to everyone and that the Government will aggressively refund taxes overpaid with the same vigour as collecting taxes owed, taxpayers will have no difficulty complying. A good tax system should be certain, clear and convenient to the taxpayer.

NEVILLE ROBINSON

venfromja@yahoo.com

Greendale, Spanish Town