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Story Highlights

  • Financial analysts continue to hail the Government’s tax reform initiative to move from direct to indirect taxation as a step in the right direction.
  • Chief Economist at the Ministry of Finance and the Public Service, Everton McFarlane, said in protecting the vulnerable, the Government needs to address their needs.
  • Minister of Finance and the Public Service, Hon. Audley Shaw, in opening the 2016/17 Budget Debate, announced several measures to obtain revenue instead of direct taxation.

Financial analysts continue to hail the Government’s tax reform initiative to move from direct to indirect taxation as a step in the right direction.

Chief Executive Officer (CEO) of the Private Sector Organisation of Jamaica (PSOJ), Dennis Chung, said his organisation applauds the move as it will capture a larger cross section of the society and achieve a higher compliance rate.

“This is something that should have happened a long time ago. We applaud the move. If we were to move towards indirect taxation, which has a much higher compliance rate, you’re actually spreading the burden more by capturing the people who have not been compliant,” he said.

Mr. Chung was speaking during a recent live broadcast of a special Jamaica Information Service (JIS) post-Budget Debate panel discussion with host, Ian Boyne.

The CEO said the shift will also provide administrative benefits as it will be easier to track the collection of taxes in a “culture of tax evasion and avoidance.”

“We have a culture where there is a large informal economy and because of how our institutions are, it is difficult to track what is going on. We have always thought it was a much fairer tax; it would be much better for Government and reduce the bureaucracy,” he said.

In the meantime, Country Managing Partner & Tax Partner at Ernst & Young, Allison Peart, pointed out that while the shift from direct to indirect taxation is one that many countries are now adopting, consideration must be given to its impact on the society’s most vulnerable.

“One of the issues with moving from a direct tax system to an indirect one is the hit on the poor. The poor are going to pay money that they would not have to if it was a direct tax. We must have robust systems to ensure that they are protected from an ease of doing business, ease of collection and cost of compliance,” she said.

Chief Economist at the Ministry of Finance and the Public Service, Everton McFarlane, said in protecting the vulnerable, the Government needs to address their needs.

“It is important that the Government maintains its commitment to address the needs of those persons, either through short-term social assistance or more medium-term efforts to improve their capacity to earn and to enter the labour force, whether through training or support at the individual and community level,” he said.

Mr. McFarlane further said that the shift in taxation should yield greater incentives for workers.

“For most workers, there is going to be a reduction in the average tax rate as we move along the income stream, which allows them to spend more. By doing so, you introduce less distortion because people can control their consumption decisions as opposed to you taxing it as they earn it,” he said.

“There will be a reduction in marginal tax rates, especially for lower and middle income earners, because of the increase in the threshold and what that means is that each additional dollar that you earn is taxed less and so that creates a greater incentive for work,”  added the Chief Economist.

Meanwhile, the International Monetary Fund (IMF) review Mission to Jamaica in May described the move as bold and essential.

“The ongoing phased reform of the personal income tax is a bold step to rebalance the tax system towards indirect taxation. The shift from direct to indirect taxes will reduce the marginal and average tax rates for the majority of the income tax payers, improve work incentives, and encourage workers and employers to move out of the informal economy,” the Mission said.

Minister of Finance and the Public Service, Hon. Audley Shaw, in opening the 2016/17 Budget Debate, announced several measures to obtain revenue instead of direct taxation.

These included a $7 per litre increase in the Special Consumption Tax (SCT) on petrol, expected to yield $6.4 billion; an SCT system for Liquefied Natural Gas (LNG) and Heavy Fuel Oil (HFO) to yield $1.4 billion; and an increase in the SCT on cigarettes, cigars, cigarillos and cheroots (including substitutes) to yield $574 million. He also announced an increase in Departure Tax to US$35, to yield $5.3 billion.