What has been going on?
Since the Jamaica Labour Party (JLP) won the February 25 general election, Jamaicans have been patiently waiting to see what this new government has to offer. Many promises were made during the election campaign. Some were timely, given the growth trajectory the country wants to put itself on. Others were welcoming, given the low income and high taxes that Jamaicans face on average.
1. The continuation of the tax relief to companies listed on the Junior Stock Exchange. The JLP promised that it would extend the tax break afforded to companies listed on the Junior Stock Exchange. This they have done and must be commended for the speedy implementation upon taking office at the beginning of March. The move is welcomed as it allows firms on the Junior Stock Market to continue operations and invest their profits to enhance business growth which can be beneficial to the country in the long run.
2. Provide pay as you earn (PAYE) relief for persons earning $1.5 million or less, which some business leaders, commentators and analyst believe is infeasible in the way it was originally proposed. This policy was supposed to take effect by April 1, but has been delayed to be announced in the government's budget presentation. Originally, the JLP proposed to maintain the current threshold of $592,300 for persons earning more than $1.5 million, while implementing a new threshold of $1.5 million for those earning up to $1.5 million. This was advised against, as research has shown that gaps or points of discontinuity between thresholds will create tax collection problems, similar to the case of Pakistan. It will be very difficult for the country to maintain different thresholds for different income groups.
To mitigate this problem, it is better to maintain one threshold for all income groups. However, a threshold of $1.5 million for everyone will result in larger deficit to be filled due to less revenue anticipated. Seventy-two per cent of the taxpaying population earns less than $1.5 million. The PAYE burden in this case will be borne by just 28 per cent of the taxpaying population. The recommendation here is to move the threshold to $1 million, the most in the initial phase, see how tax revenues respond and gradually increase it to $1.5 million as time progresses and the Government finds more creative ways of earning revenue.
The Government earns most of its income from tax revenues. Other sources of income are from grants non-tax revenues and capital revenues. For the 2014/2015 fiscal year (data for 2015/2016 not yet available), the Government collected approximately $412 billion in revenue. Of this, approximately $370 billion was from taxes. The three highest contributors to the Government's tax receipts are taxes on income and profits which amounted to $121 billion, PAYE $68 billion, general consumption tax (GCT) on domestic produce $64 billion, GCT on imports $58 billion, domestic (Special Consumption Tax) SCT $10 billion and SCT on imports, little over $30 billion. If the new threshold is implemented, the Government will forgo some of its PAYE receipts and must fill the gap creatively with minimal negative impact on consumer spending, especially for those who will not benefit from the changes in the threshold if it materialises.
After talking on the sidelines for approximately four years, the newly elected Minister of Finance Audley Shaw has been given the opportunity by the electorate to illustrate how his policy recommendations can assist the country to accomplish its economic goals, taking our fiscal constraints into consideration. Prior to being elected, Shaw was very outspoken as to how he envisioned the country's economic transition. As we anticipate this year's budget presentation, here are few of his recommendations from last year:
1. Government should reprioritise the budget, putting more emphasis on early childhood education. They should also abolish the shift system in schools.
2. Instead of reporting two different totals for the national debt, the government should increase transparency by using the IMF's recommended method to report the national debt.
3. Review the fiscal incentive regime to increase global competitiveness.
4. Offer investment tax credit to encourage large foreign businesses to retain a portion of their earnings in the country.
5. Move towards implementing the Caymans Economic Zone.
6. Take swift steps to accelerate the development of downtown Kingston.
7. Encourage commercial banks and lending institutions to lend more affordable to small businesses.
8. Strengthen capital available to the Micro Investment Development Agency and Self-Start Fund.
9. Ban the importation of construction workers only to the extent that we cannot supply local labour to the industry.