Let me begin by expressing my sincere appreciation to the Tax Administration Department and the Management Institute for National Development for this Tax Services Exposition. It is my privilege to participate in today’s events.
I am always pleased to voice my support for initiatives that promote mutual learning. Indeed, this exposition presents a valuable vehicle for that critical interaction between taxpayers and tax administration officials to develop understanding with regard to legislation, regulation and processes.
Indeed, this type of exchange plays a decisive role in furthering the design and implementation of a tax administration system that is first and foremost client-centred. Sincere commendations to the organizers of this event – who in partnership – have demonstrated vision with regard to the mutual value of this exposition, and I urge all participants to take full advantage of this opportunity to learn from each other.
I am particularly pleased that the major focus will be on small to medium sized enterprises – reflecting our acknowledgement of the special needs of businesses of these sizes; reflecting also the realization of the role being played by these enterprises in providing critical goods and services for the economy as well as demonstrating leadership in creating employment and employment opportunities. I extend a special welcome to all, especially representatives of organizations and associations.
I must take this opportunity to add my public congratulations to the Director-General Mr. Clive Nicholas and his team, the Commissioners and all the employees of the revenue services for the revenue turnout that exceeded expectations in the last quarter of ’03/04. This considerable effort played a decisive role in meeting the fiscal deficit target.
The Rationale for Effective and Efficient Tax Administration
Let me begin by sharing one of the clearest articulations of the distinction between tax policy and tax administration. According to Governance Resource Center (GRC) of the UK Department for International Development (DFID):”Tax policy and tax administration are the instruments by which governments raise revenue to finance spending on public goods and services. Tax policy refers to the choice of tax instruments, the rates at which taxes are set, the nature of exemptions and the assignment of taxes to different levels of government. Tax administration refers to the efficient and effective implementation of tax policy. Although tax administration is conventionally separated from tax policy, the two are closely linked in practice.”
Whilst I recognize the distinction but linkage between the two, I should like to reserve commentary on tax policy – given the ongoing and soon to be completed tax policy review – and focus more on tax administration. Without an effective and efficient tax administration system, the ability of tax policy to achieve the primary intended goal of raising revenues in an equitable manner is severely limited. Specifically, an inefficient and ineffective system can:
Result in sub-optimal collection of revenue as the best tax policy in the world is worth little if it cannot be implemented effectively
Negatively impact the management of public expenditure since the size and timing of cash flows impact on spending on capital and recurrent expenditure, including debt service obligations.
Deter and discourage private sector investment if the tax administration system is arbitrary or predatory. Perhaps Adam Smith said it best: “The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person, so that the taxpayer is not put in the power of the tax gatherer.”
Impede the fostering of mutual trust with civil society – a critical precursor to successful voluntary compliance which is the principle upon which most democratic societies – and Jamaica is no exception – rely. Corruption and the perception of corruption result not only in revenue leakage but also create the impression of weak governance and increases hostility between the government and the broader society.
Severely hamper efforts to formalize the informal economy. Let me expand a bit on this one. The informal economy as officially defined has two categories. First, legal enterprises that are in the tax net but not reporting accurately and/or paying over all that is due. Second, legal enterprises that are not in the tax net because they have not registered their businesses. Companies in both categories enjoy an unfair advantage relative to companies that are operating with full compliance with the tax authorities.
For those persons in the informal economy, please note that we have intensified our efforts to bring you into the net.
For those persons who are have been less than honest with the tax authorities, please note that we have brought in expertise from the Canadian government to upgrade our audit capabilities. For those persons holding on to the revenues that taxpayers – shoppers and employees – have conscientiously and responsibly provided, please be advised that we are already more aware of them than they may think. They are holding on to funds that are not theirs. They are utilizing these funds in their businesses, when these funds are the taxpayers’ contributions to the resources for government expenditure in the development of the country. In the pursuit of providing services to the public, the government must seek expensive resources to compensate for what they have held on to without any penalty to them. Obviously, that practice cannot continue.
For those persons who are unregistered, I continue urge them to step forward to make their contributions. We have and continue to aggressively pursue registration on a door-to-door basis. In FY 2003/2004 we registered some 4,114 new taxpayers and collected approximately $4.2 B in revenue. For all those reasons, it is of paramount importance to continuously invest in the tax administration system to be responsive to the needs of a changing society in a complex globalized environment.
Having explained the significance of tax administration as distinct from tax policy, one must wonder why it is so rare that the tax administration department is complemented for its performance and achievements. Do we forget where we were before the reform began in 1994? As you are all aware, there has been – and continues to be – a process of monumental change – change that has been informed and influenced by dialogue with stakeholders and taxpayers. And we have begun to reap the benefits of those investments manifested in:
An increase in taxpayer registration with the introduction of the Taxpayer Registration Number. To date, 1,385,808 TRNs issued.
A more responsive organizational structure along service lines rather than functions which has facilitated the gain of efficiencies via the streamlining of operations
The implementation of the Integrated Computerized Tax Administration System (ICTAS) – now 85% complete – which has revolutionized the speed and accuracy of transactions, and significantly reduced the bureaucracy of trade transactions
A comprehensive customs modernization program with human resource reforms, technological advances and legislative strengthening
Human resource development with extensive post reclassifications, salary increases and ongoing training
Continuous strengthening and modernization of the legal and regulatory framework to address the challenges inherent in an open and liberalized economy.
Improved taxpayer service which includes more collection locations, extended opening hours for collection offices, better management of the handling of arrears, greater use of the tax courts and utilization of electronic processes
Improved public relations with greater dialogue with stakeholders and taxpayers – such as today’s event.
These advances continue to improve tax collections with significant growth in revenues year over year, reduce tax evasion and avoidance, root out corruption, promote transparency, encourage voluntary compliance, strengthen surveillance, border control and protection, enhance commercial trade, promote investment and in effect, support the paradigm shift to a client-centred approach to tax administration. However, as we recognize these gains that we have made, there is a need to focus our efforts in the area of cultivating a taxpaying culture, a tax morale, if you wish.
The Role of Taxes in Development
It was Justice Oliver Wendell Holmes Jr. who said: “Taxes are the price we pay for a civilized society.”
What is “a civilized society”? One definition of civilized speaks of a state of a relatively high level of cultural and technological development. I submit that with that definition, we could easily agree that attainment of such a society is desirable. So the real question should be not whether or not we want such a society, but rather what are we willing to pay for such a society?
Consider this, and I’d like you to listen to me carefully:
In any nation, citizens are taxed – directly and/or indirectly – to provide financial resources for goods and services in the pursuit of national development. An open and liberalized economy, such as ours, is subject to the dictates of not just the local market economy, but also more importantly global market forces. Our import dependence – to some degree by necessity, to another degree by personal consumption choices – has created a demand for higher revenues to compensate for the needs and demands of the people.
For the benefit of all the people, needs and demands include national security, education, health, public transportation, roads and community services. When current tax revenues collected cannot keep pace with the demands created by the pace dictated by globalisation, debt is incurred as an advance on tax revenue to facilitate necessary development necessary as a precursor and/or complement to private sector investment. Such necessary development includes capital-intensive projects – such as in infrastructure – that have typically internationally been the remit of Government – any government. All this private and public sector investment creates employment and growth culminating in the development of that “civilized society” which we have all agreed that we desire.
But consider this also: globally the paradox of taxation boggles the mind. Naturally, we all want to live in a style or manner befitting of a first world country, yet we are hesitant – not unwilling, but hesitant – to pay for it.
Ladies and gentlemen, economic survival and prosperity hinges upon the strength of a taxpaying culture and tax morale. We must make that critical link between tax revenues and economic independence. If we, by abdicating our responsibility to pay our taxes, do not provide the revenues for services for the public good, then who do we really expect to pay for them?
We are challenged to overcome this hesitation, turn the existing status quo on its head and effect a paradigm shift into a taxpaying culture and development of tax morale. But how do we do this?
Taxpaying Culture/Tax Morale
Indeed, international research has found, and I quote: “Tax compliance is not simply the result of opportunities to evade tax and the deterrence and prevention strategies of tax authorities. Tax compliance to a considerable extent has to be attributed to the tax morale of taxpayers.Tax morale on the other hand, is not simply the result of one’s upbringing. It depends on the interaction between taxpayers with tax authorities, on the legal framework, and on the constitutional environment.”
The theory and concept of a “taxpaying culture” has been the subject of much academic research. In my discussions – and international experience supports these findings – a number of reasons have emerged for our lack of a taxpaying culture such as:
A perception that tax burden is too high/excessive,Lack of honesty/lack of civic conscience,Lack of social norms such as guilt, shame, fear, anxiety/perception of little or no moral costCorruption and the perception of corruption,Equity, fairness, and transparency and the perception of equity, fairness, and transparency Lack of knowledge about the benefits from public spending/ inability to map revenues to expendituresDisagreement with the government about allocation of resourcesLack of fiscal knowledge/understanding of why paying taxes is importantAbility and perceived ability to detect and punish
In creating a taxpaying culture, all of these must be addressed. Some require social changes, some require systemic changes, and some require education and dialogue. We must move beyond divisions – political, government vs. private citizen or private sector.
International research has demonstrated and I quote:”Strategies aimed at reducing the level of distrust between the two sides may prove particularly effective in gaining voluntary compliance with an organization’s rules and regulations”
Sometimes, I wonder if people remember that the people employed to the tax authorities are all taxpaying citizens. Do we really recall that all members of the political directorate are all taxpaying citizens? I freely admit that the suggestions that the guidance that I provide to the tax authorities stems from a deeply rooted belief in a client-centred approach and in that vein I use my own perspective as a client – a very critical and difficult to please one at that. We have more in common than we appreciate and we must seek to build on our commonalities rather than divide based on our differences. Therefore, it should go without saying that a more efficient, effective, equitable system will be for the benefit of all of us.
The drive to create this taxpaying culture is reflected in a recent revision of the mission statement of the Tax Administration Department:
To collect the revenue due to the Jamaican government under the tax laws in an equitable, efficient and effective manner.To earn and maintain public confidence in our integrity through a cadre of highly motivated, professional and service-oriented staff.To achieve the highest possible level of voluntary compliance, at the least cost to the Jamaican taxpayers.
We recognize that a modernized reformed tax administration system is not complete without the input and direction of the taxpayers. We must “communicate” with stakeholder and taxpayers, rather than “inform” stakeholders and taxpayers. To communicate is to have an interchange, as of ideas; to inform is to make aware of something. We must solicit and incorporate constructive criticisms from taxpayers. I believe that this strategic development must encompass understanding of the beliefs, attitudes, values and motivations that our citizens hold in regard to the tax administration system and fellow taxpayers. I have said before and I will say again, participatory governance is not a luxury of the 21st century; it is a requirement and it is desirable. This constitutes the very heart of a client-centred approach.
International research has shown and I quote: “Tax morale appears to be higher where taxpayers can influence tax laws and tax rates, and also the rules of the tax game in general. Taxpayers perceive their civic duty more strongly if they are directly involved in political decisions of content instead of solely electing representatives on a regular basis”
In Canada and the United States, broad based structured dialogues have informed the strategic directions of their respective tax administration systems. As Minister with responsibility, I have been in consultations with the Canadian officials with regard to sharing their experience with us. And in that regard, we are finalizing the details for a delegation to be led by me to undertake a study tour of the Canadian system to explore potential areas for further modernization and responsiveness, especially with regard to the design of a mechanism for dialogue for Jamaica.
ConclusionI should like to conclude with an appeal for partnership. We have a genuine opportunity to break the negative and destructive cycle of cynicism and distrust. The gains we have made as a nation have been influenced by the demonstrated partnerships created and nurtured between associations, between the government and the private sector etc.
Let us capitalize on this contagious spirit of cooperation and partnership. I am urging all citizens and taxpayers to come together in discussion and dialogue to chart a course for the future.
This tax administration system does not belong to the government; it belongs to the people who have paid for it, the people who continue to pay for it, and the people who will benefit from the gains in revenues, trade and investment as a result of increased efficiency, effectiveness and equity.
Ladies and gentlemen, those people are all of us.
I thank you.

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