Deputy Financial Secretary Cites Impediments to Tax Reform


Budgetary implications, political consideration and CARICOM’s Common External Tariff (CET) are impeding Jamaica’s chances of achieving effective tax reform that will make the tax system simpler, fairer, and enhance economic growth.
Deputy Financial Secretary in the Taxation Division of the Ministry of Finance and the Public Service, Paul Lai, expressed this view at a JIS Think Tank yesterday (July 15), citing three areas of hindrances to successful tax reform.
“There are at least 3 hindrances to effective tax reform in Jamaica,” he said, pointing to budgetary implications. “It will vary depending on the type of tax reform being implemented,” he explained, noting that a phased reform for example, “would likely imply that only the mix of options that will yield more revenue would be chosen.”
In terms of political considerations as a hindrance to effective tax reform, Mr. Lai said that some reform options could lead to political fallout for the Government. He explained that “reform will create winners and losers and the latter might not necessarily welcome such reforms.”
Adding that government might also be constrained by CARICOM’s Common External Tariff (CET), he said it might make it difficult to actually address the variable tax rate structure.
Despite these challenges, he said, “we need to simplify the tax system, make it more user-friendly to taxpayers, less distortionary and more progressive,” meaning that those who earn higher incomes should pay a higher percentage of their income than those with lower incomes.
He said a progressive tax system is desirable, while acknowledging that Jamaica’s tax system overall is mildly progressive, unlike regressive taxes, whereby people with more income pay a smaller percentage in taxes, and proportional taxes, which will see households paying the same share of income in taxes regardless of their ability to pay.
In addition, Mr. Lai said there is an urgent need for a tax system that is equitable, where each taxpayer contributes his/her fair share of the cost to government. He distinguished between what he referred to as horizontal equity, whereby taxpayers with the same income bear the same burden regardless of the source(s) of income, and vertical equity, which is where those taxpayers with more income pay proportionately more tax on that income.

JIS Social