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EDITORIAL - No new taxes until ...

Published:Monday | May 26, 2014 | 12:00 AM

We have a bit of advice for Peter Phillips: Don't plan any new taxes for the coming fiscal year or to cover any shortfall in the existent one. That doesn't mean that we expect the finance minister to further contain Government spending.

Rather, we expect the minister to collect the taxes that are owed to the Government, which, up to now, has been the area of weakness in the generally impressive management of Jamaica's fiscal affairs.

To be fair to Dr Phillips, it is an area of the economy that has defeated his predecessors at the finance ministry. For a while at 25 per cent of gross domestic product (GDP), Jamaica's tax-to-GDP ratio revenue is in the range of global economies, and it is widely accepted that tax evasion is rampant.

Four years ago, for instance, the then prime minister, Bruce Golding, reported that of an estimated quarter-million self-employed and professional employees in Jamaica, a mere 4,000 were registered to pay income tax. We do not expect there to have been a massive increase in enrolment since then.


On the other hand, pay-as-you-earn (PAYE) employees, who can't escape the tax net, contributed J$66 billion, or more than 18 per cent of the tax revenue collected in the past fiscal year.

The tax leakage is not only from the self-employed and professionals. Firms, too, don't pay their fair share. Mr Golding, in his 2009 assessment, reported that one per cent of registered firms accounted for 75 per cent of corporate taxes and suggested that 80 per cent of due company taxes didn't reach the Treasury. Nor did 50 per cent of property tax.

A 2012 analysis by a private-sector group considering tax reform supported Mr Golding's assessment. Of more than 62,000 companies on the books in Jamaica, a mere 28 per cent of them were registered for income tax, and only 10 per cent filed returns. And of all the firms, only five per cent actually paid taxes.


In the past, with the Government unable to close gaps in its Budget, it borrowed heavily and compensated for shortfalls with new tax measures. To meet obligations under Jamaica's current programme with the International Monetary Fund (IMF), for example, Dr Phillips has, since early 2012, announced tax packages worth around J$45 billion, including J$6 billion at the start of the current fiscal year in April.

Largely, the Government has tapped the same people for the additional taxes - PAYE workers and compliant firms. That is not sustainable. Nor should it be particularly difficult to bring new people/firms under the tax net, if the administration is serious and Dr Phillips is willing to give as much time and be creative in collecting taxes as he has been in formulating new ones.

He should start with the appointment to be made to the leadership of the new, semi-autonomous Tax Administration Jamaica. That job, in prestige and authority, should be no less than the governor of the central bank - and so reflected in the quality of the appointee. Nor should it be difficult to match the conspicuous consumption of individuals - homes, vehicles, etc, and their tax returns.

Indeed, it's worth considering incentive-based compensation for effective tax collection by employees. When Dr Phillips is certain that he is closer to maximum take, then we can debate new measures. He might even consider lowering rates.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.