More than $16b needed to fund sec­ond round of $1.5m tax thresh­old

Jamaica Gleaner - - BUSINESS - McPherse Thomp­son As­sis­tant Edi­tor - Busi­ness mcpherse.thomp­son@glean­erjm.com

THE JA­MAICAN Gov­ern­ment may need to im­pose rev­enue mea­sures in ex­cess of the $16 bil­lion re­quired to fund phase two of the per­sonal in­come tax re­form, which will see the thresh­old move to $1.5 mil­lion at the start of fis­cal year 2017-18, ac­cord­ing to up­dated doc­u­ments sub­mit­ted to the In­ter­na­tional Mone­tary Fund (IMF).

Not­ing that phase two of the per­sonal in­come tax re­form is es­ti­mated to cost an ad­di­tional 0.9 per cent of GDP or about $16 bil­lion, the Gov­ern­ment said, in the Septem­ber 2016 mem­o­ran­dum of eco­nomic and fi­nan­cial poli­cies, that “we are cur­rently ex­plor­ing op­tions for off­set­ting rev­enue mea­sures for im­ple­men­ta­tion in the FY2017-18 Bud­get, with sup­port from the IMF”.

It added that “en­sur­ing rev­enue neu­tral­ity of the over­all tax re­form pack­age, how­ever, could re­quire rev­enue mea­sures in ex­cess of 0.9 per cent of GDP, given the ex­tra so­cial trans­fers needed to shel­ter the pur­chas­ing power of the most vul­ner­a­ble from the shift from In this Au­gust 2016 photo, IMF Mis­sion Chief Dr Uma Ra­makr­ish­nan lis­tens as Min­is­ter of Fi­nance Aud­ley Shaw ad­dresses a press con­fer­ence in Kingston. The In­ter­na­tional Mone­tary Fund has sig­nalled that Ja­maica will need to raise more than $16 bil­lion of new rev­enue to off­set the cost of rais­ing the tax thresh­old. di­rect to in­di­rect taxes.”

The first phase of the ex­emp­tion thresh­old for the per­sonal in­come tax took ef­fect on July 1, 2016 when the gov­ern­ment in­creased it to just over $1 mil­lion from $592,800, the same time as the mar­ginal tax rate for earn­ings above $6 mil­lion was in­creased from 25 per cent to 30 per cent.

The Gov­ern­ment also said that phase one of the re­form is es­ti­mated to cost 0.9 per cent of GDP this fis­cal year and off­set­ting rev­enue mea­sures im­ple­mented in­clude a $7 per litre in­crease in spe­cial con­sump­tion tax (SCT) on fu­els, an in­crease in the de­par­ture tax to US$35, in­crease in the SCT on cig­a­rettes and im­ple­men­ta­tion of a new liq­ue­fied nat­u­ral gas tax­a­tion regime.

The Gov­ern­ment noted that in the con­text of the shift from di­rect tax­a­tion, “we will also strengthen prop­erty taxes, which have been shown to be both pro­gres­sive and ef­fi­cient. The new rates and bands for prop­erty taxes us­ing the 2013 land val­u­a­tions will be com­pleted and sub­mit­ted to Cabi­net for ap­proval by end-De­cem­ber 2016”, a new struc­tural bench­mark un­der the eco­nomic sup­port pro­gramme with the IMF.

The Gov­ern­ment said it will also be ex­plor­ing the scope for en­vi­ron­men­tal tax­a­tion, in­clud­ing a car­bon tax that will help Ja­maica ful­fil its Paris com­mit­ment by 2025.

In ad­di­tion, a com­pre­hen­sive tax re­form pack­age, with due ac­count to so­cial pro­tec­tion, that ex­tends be­yond fund­ing of phase two of the per­sonal in­come tax re­form will be put in place start­ing in fis­cal year 2017-18.

Last month, Fi­nance and Pub­lic Ser­vice Min­is­ter Aud­ley Shaw said the gov­ern­ment’s $16 bil­lion fund­ing of the sec­ond phase of the per­sonal in­come tax thresh­old’s move to $1.5 mil­lion at the start of fis­cal year 2017-18 would not be done through an au­to­matic tax mea­sure.

“The is­sue here is not an au­to­matic tax mea­sure, although, as I in­di­cated ... if it has to come, it will come,” he said.

The IMF ex­ec­u­tive board, in ap­prov­ing the 13th re­view un­der the ex­tended fund fa­cil­ity with Ja­maica, said the re­bal­anc­ing from di­rect to in­di­rect taxes pro­vides an op­por­tu­nity to im­prove com­pli­ance and in­crease in­cen­tives for pro­duc­tion and ef­fort.

“At the same time, protecting the poor and vul­ner­a­ble is a high pri­or­ity, which re­quires de­vel­op­ing and im­ple­ment­ing a well-de­signed plan to en­hance Ja­maica’s so­cial pro­tec­tion frame­work to en­sure in­clu­sive and eq­ui­table growth,” the board said.

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