EDITORIAL - Get serious about tax reform

The last time Jamaica attempted anything approximating an overhaul of its tax system was in the 1980s. Then, Edward Seaga eliminated the system of bands on personal income tax and replaced them with a flat rate of 25 per cent.

In the 1990s, the Patterson administration introduced the general consumption tax (GCT). Eight years ago, at the behest of then finance minister, Dr Omar Davies, Joseph M. Matalon's committee produced comprehensive reform proposals.

Bits and pieces from the Matalon report, in ad hoc fashion, have been appended to existing arrangements. What has emerged is a policy mishmash that attempted to tackle the latest revenue crisis.

A suitable architectural metaphor, perhaps, is one of those Jamaican hillside monstrosities, lacking in rhyme or reason, that never seems to be completed, with the builder adding a wing every time he musters some cash.

There is a renewed opportunity, however, for Jamaica to comprehensively restructure its tax system, synchronising policies with expected outcomes for development and growth. Again Joe Matalon, now president of the Private Sector Organisation of Jamaica (PSOJ), is in the thick of things.

Imf agreement prerequisite

Jamaica's ability to conclude a new agreement with the International Monetary Fund is predicated, not unsubstantially, on Kingston reforming its tax system, aimed, in part, at making it more friendly to doing business while bringing more revenue into the national coffers. Indeed, it was partly the failure to complete such reforms that derailed the previous Government's standby agreement with the Fund.

The new administration, including its finance minister, Dr Peter Phillips, has declared its commitment to completing the process. It has continued parliamentary hearings into the matter and has received much help from the private sector, under Mr Matalon's leadership.

Last week, a Private Sector Working Group (PSWG), led by the PSOJ, unveiled its own comprehensive set of proposals for tax reform, with much persuasive argument for why they should be implemented.

Significantly, until now, no group has offered a specific or coherent reform package, underpinned by robust articulation. Indeed, the previous administration's White Paper on the issue was, at best, skeletal.

Cushioning poor from GCT

A critical element of the private sector's proposal is the reduction of the GCT rate from 17.5 per cent to 12.5 per cent and eliminating almost all the products that are currently zero-rated, or exempt from the tax. The most vulnerable would now be afforded direct cash subsidies to compensate for the extension of GCT to products critical to the consumption basket. This approach would eliminate the subsidies - represented by the zero ratings and exemptions - to the well-to-do.

In addition to a raft of other suggestions aimed at spurring investment, the PSWG has proposed a downward adjustment in corporate income tax from 33.3 per cent to 15 per cent, plus a 10 per cent dividend withholding tax on distributed earnings. Personal income tax would also fall to 15 per cent on the first $1.1 million, moving to 25 per cent on additional income.

In so far as there is yet a debate on the PSWG's suggestions, there have, unfortunately, been old-fashioned knee-jerk ideological claims of rich, corporate interests looking out for their own at the expense of the poor.

Jamaica deserves better. It has, as Dr Phillips knows, little time within which to get it. Fortunately, the private sector has done much of the work for the Government.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.