Jamaicans are to benefit from a reduction in the General Consumption Tax (GCT), from 17.5 per cent to 16.5 per cent, which will result in a lowering of prices on consumer goods and services, which currently attract GCT.
"This is the first in a number of steps that will be taken to reduce the standard rate over the medium term," Minister of Finance, Planning and Public Service, Hon. Dr. Peter Phillips said.
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The Minister was opening the 2012/13 Budget Debate in the House of Representatives, on May 24.
The estimated revenue loss on GCT will be $2.4 billion and the effective date for implementation is June 1, 2012.
While a number of items will remain exempted from GCT, some will be removed from the exempt list and become taxable. Some of these items include patties, rolled oats, corn beef (canned), eggs, pickled mackerel, herring, shad, dried salt fish and raw foodstuff (excluding chicken).
This widening of the GCT base will earn the Government an estimated revenue of $4.2 billion and will be implemented as of June 1, 2012.
Also as of June 1, the Government will increase the threshold for GCT on electricity from 200 Kilo Watt Hours (kwh) to 300 kwh. The portion of the electricity bill over 300 kwh will now be subject to a tax rate of 16.5 per cent.
Currently there are just over 500,000 residential customers and under the present threshold of 200 kwh, 377,000 residential customers do not pay GCT on their electricity bill.
"The proposed measure should relieve approximately 80,000 additional residential customers from the payment of GCT on their electricity bill at the new threshold level of 300 kwh, leaving only 52,000 residential customers subject to GCT. In percentage term, over 90 per cent of residential customers would now not be subject to GCT on their electricity bill," Dr. Phillips pointed out.
It is estimated that the Government will earn $0.43 billion, with an effective implementation date of June 1, 2012.
Dr. Phillips also announced an increase in the personal income tax threshold from $441,168 to $507,312, as of January 1, 2013.
"As a result, 2,981 taxpayers will no longer pay income tax, as an annual relief of $66,144 will be granted to all taxpayers. The special benefits currently enjoyed by seniors on a fixed income will be retained," the Finance Minister said. The estimated revenue loss is $0.10 billion.
Meanwhile, Dr. Phillips informed that the revenue projection of $337.9 billion and the expenditure budget of $612.4 billion approved by Parliament left a financing gap of $274.5 billion and a primary balance of $60.1 billion.
"However, a target primary balance of $83.6 billion has been identified as the appropriate level to address the debt dynamics. Consequently, tax measures of approximately $23.4 billion are required," Dr. Phillips said.
With respect to financing the gap of $274.5 billion, $165.1 billion is programmed to be raised from the domestic market, while the remainder of $109.3 billion is to be raised from external sources. However, with a higher level of primary balance being targeted, the borrowing requirement will be reduced from $274 billion to $251.1 billion, the Minister noted.
By Latonya Linton, JIS Reporter