JCA’s contribution to GOJ tax revenue remains robust: entity continues to perform effectively

A PRINCIPAL objective of the Government of Jamaica’s (GOJ) revenue strategy is the reform of the tax system to achieve simplicity, efficiency, and equity. The improved tax system is expected to ensure revenue adequacy and to facilitate a more competitive business environment that promotes sustainable economic growth and development. The Jamaica Customs Agency (JCA) plays a pivotal role in the achievement of this revenue objective. As part of its mandate, the JCA equitably collects the revenue due from international trade and travel.

As at December 2022, $213b in tax revenues for the current fiscal year was generated from international trade and travel. Comparatively, this inflow surpassed the prior year’s tax revenue outturn of $169.3b by $43.7b, or 25.8 per cent. Additionally, the current yearto-date tax revenue exceeded the pre-pandemic outturn of $165.2b by $47.8b, or 29 per cent. Historically, yearon-year growth in revenue averaged 11 per cent and was driven largely by changes in the volume and value of international trade and accentuated by new revenue measures, to include an increase in the Special Consumption Tax (SCT) payable on fuel, alcoholic beverages and cigarettes, broadening the General Consumption Tax (GCT) and environmental levy (ENVL) base, as well as increasing the travel tax rate and denominating same in United States dollars, which further solidify the GOJ’s commitment to fiscal consolidation.

However, in the absence of new revenue measures, spanning the period FY2018-19 to FY2022-23, the historical average growth rate in revenue was five per cent. At this rate, and holding macroeconomic variables constant, the receipts-based revenue projection model estimated the tax revenue for April to December 2022 at $191.3b – $21.7b, or 11 per cent below the current outturn. The COVID-19 pandemic and the attendant implications for the cross-border movement of people and cargo have certainly changed the JCA’s revenue growth trajectory. The revenue statistics revealed a strong recovery in international trade inflows and importantly, demonstrated the resilience of the Jamaican economy.

The outturns for all tax revenue items exceeded both the preceding year as well as the pre-pandemic year, with the consumption taxes recording the strongest performance year-on-year. In terms of contribution to the total tax revenue outturn, between 2022 and 2021, the import duty item remained firm at 22 per cent – a one percentage point improvement over 2019, where the registered contribution was 21 per cent.

The GCT item maintained its dominance, accounting for 42 per cent of the total tax revenue for 2022. However, this contribution was two percentage points below the 44 per cent recorded for 2021 and also one percentage point below the 43 per cent recorded for 2019. The change in contribution was driven largely by the continued fiscal support provided by the GOJ to productive sectors.

Like import duty, the SCT’s contribution remained unchanged at 24 per cent between 2021 and 2022, but improved by one-percentage point from the 23 per cent registered for 2019.

The travel taxes, which traditionally accounted for 10 per cent of the tax revenues, recovered from a low of three per cent in the height of the COVID-19 pandemic to six per cent in 2021, and stood at nine per cent in 2022; recovery that could be attributed to the reopening of the borders to travellers, as well as the tourism and entertainment sectors.

Aggregately, at the macro level, the JCA’s contribution to the total GOJ’s tax revenue remained robust and unchanged at 41 per cent between April to December 2021 and 2022. Prior to the onset of the pandemic, this contribution, over the nine-month period ending December 2019, stood at 40 per cent.

Similarly, the ratio of tax revenue from international trade and travel to gross domestic product (GDP), using the available data as at September 2022, remained unchanged at 11 per cent when compared with the first two fiscal quarters of 2019, but improved by two-percentage points, relative to the same period of 2021.

Bold reforms, or operational improvements, driven by evidence-based decisions, coupled with strong recovery in economic activities may have contributed to the recovery in international trade revenues. Additionally, the impact of higher commodity prices, unprecedented growth in transportation cost, and changes in key macroeconomic indicators such as inflation, interest rate and exchange rate cannot be discounted.

To the credit of the JCA, its revenue assurance mechanisms prevented the avoidance or evasion of $4.07b in revenue over the period April to December 2022. This was 42 per cent more than the previous year and an almost doubling of the additional assessment registered for the same period of 2019. Undoubtedly, the promotion of knowledge-sharing, through continuous training, greater use of data analytics and the digitalisation thrust, have contributed significantly to this achievement.

At the commodity level, the strong revenue performance recorded by the JCA was buoyed by the following top 10 categories – mineral fuel; beverages and spirits; motor vehicles and parts, and accessories thereof; ceramic products; machinery and equipment; plastics, and articles thereof; preparations of vegetables, fruits and nuts, or other parts of plants; furniture and bedding; rubber, and articles thereof; miscellaneous edible preparations; as well as preparations of cereal flour, starch or milk.

However, the sustainability of this revenue buoyancy may be threatened by several risks which may emanate from a resurgence of the COVID-19 virus, lower than anticipated global growth, disintegration or geoeconomic fragmentation, globalised inflationary conditions, the associated tightening of monetary policies and its implication for purchasing power and aggregate demand, anchorage of recession fears and geo-political tensions. In fact, the Council on Foreign Relations, in its 2023 survey, has highlighted some conflicts to watch, including an escalation of the war in Ukraine, security crisis in Asia, civil unrest in Mexico and Central America, as well as cyberattacks on the infrastructure of some of Jamaica’s major trading partners.

International trade has long been promulgated as the pathway to sustainable growth and development. This ecosystem requires a realignment after multiple shocks, bolstered security, as well as efficient and effective actors (facilitators of the seamless movement of legitimate cargo and people across borders). The JCA, as a key actor, is cognisant of this requirement and is committed to continuous improvement, supporting new business models, and strengthening its revenue assurance mechanisms to grow its contribution to the GOJ’s total tax revenue and promote revenue adequacy, while contributing to economic stability and sustainable development.