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More Revenue Needed to Close Fiscal Gap

July 17, 2008

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Deputy Financial Secretary in the Taxation Division of the Ministry of Finance and the Public Service, Paul Lai, has said that Jamaica’s tax system urgently needs to raise more revenue to close the fiscal gap.
Speaking at a JIS Think Tank session yesterday (July 15), Mr. Lai said that despite the high levels of foreign direct investment inflows into the country the growth rates in Gross Domestic Product (GDP) achieved annually has been low. This he attributed to the inefficiency of the tax structure, noting that the current debt to GDP ratio of 126.1 per cent.
Pointing out therefore, the need for reform of the tax structure he cited several other reasons lamenting that, “The tax system is ad hoc due to the granting of special treatment, often based on discretion rather that an objective/rules-based system, differential treatment for certain taxpayers.”
He also said that the tax bases are too narrow due partly to exemptions, zero-rating and the granting of various incentives, among others, and that the tax system is often perceived as being unfair, both horizontally and vertically.
Looking forward, he said ideally, a tax system should have at least three main attributes, including: equity, efficiency and simplicity, noting that “it should also have a low tax rate where possible, coupled with further broadening of the base to create a more investment friendly climate and to boost tax compliance.”
He also believes in reducing the number of non-standard tax rates for a particular tax type, such as the General Consumption Tax (GCT).
Pointing out that indirect taxes are more conducive to growth, Mr. Lai expressed a preference for increased reliance on indirect taxes rather than direct taxes, and simplification of the tax system by reducing exemptions and through amalgamation, which involves consolidation of payroll taxes to reduce duplication, lower the compliance costs to taxpayers, and reduce the onerous requirements for compliant taxpayers.
Mr. Lai also advocated for harmonized tax rates where possible, for example, Corporate Income Tax (CIT) to reduce ‘income shifting’ and to militate against international tax competition and increased capital mobility, as well as rationalization of the existing incentive regime.

Last Updated: July 17, 2008

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