EDITORIAL: Higgledy-piggledy tax policy

There are other things at which Jamaica's finance ministry may be good. Presumably! But when it comes to crafting and implementing taxation policy, it is horrible.

The latest evidence is Finance Minister Audley Shaw's recent higgledy-piggledy management of a new tax regime for spirits and beer.

First, Minister Shaw announced that he would change the way that the excise tax is applied to alcoholic beverages. Instead of a regime in which the tax was based on the category of product, it would shift to a specific rate of alcohol content by volume.

The new arrangement, Mr Shaw said, would raise nearly $1 billion extra and close a gap in his Budget. The brewers, Red Stripe, a subsidiary of the global drinks company, Diageo Plc, welcomed the move. The tax on Red Stripe's products would fall.

Old system unfair

The old system, they contended, was unfair, causing Red Stripe to pay higher taxes on their products, compared to the manufacturers of spirits. And this, combined with the global downturn, had cost Red Stripe about a million cases in the sale of its products in the past year.

The rum distillers and blenders, J. Wray & Nephew, complained about the new regime. Not only would their products pay higher excise, J. Wray & Nephew complained, but there had been no dialogue with them ahead of announcing the new regime. The process, therefore, would be disruptive.

The rum distillers, for a while, did not put some of its products into the market, and Mr Shaw dawdled and dithered, and Red Stripe warned darkly that if the system was reversed, it might be forced to move its export production from Jamaica. The alternative would be to lose another million cases of beer next year.

Mr Shaw dithered some more and then announced a revision of his revised regime. The excise on locally manufactured and blended and special consumption tax (SCT) on imported spirits would be lowered. The tax on beer would be adjusted to make it revenue neutral. Tonic wines and cordials that previously escaped such taxes would stay in the net.

But in the process, the minister created another disgruntled constituency: the manufacturers and distributors of those popular caffeine-based energy drinks, such as Red Bull. They would now be subject to a 15 per cent SCT. These producers complained of a lack of prior consultation and warned of damage to manufacturing. Déjà vu?

The finance ministry has made a habit of bungling its tax measures. In April, Mr Shaw tabled a tax package but quickly recalled it to allow for, among other things, the ladling of more pork in the greasy barrel known as the Constituency Development Fund.

The 2008-2009 fiscal year started with a tax package of $24 billion, but six months into the fiscal year, it was clear that things were not well thought out and that the Budget was under stress.

In December, Mr Shaw came with another $24- billion tax package as a precursor to an agreement with the International Monetary Fund, but faced public backlash. It required a Christmas Eve intervention by Prime Minister Golding to mollify the country.

As the Private Sector Organisation of Jamaica has advised, and the Government previously agreed, taxation demands consultation and an overhaul of the system.

This higgledy-piggledy approach will not work.

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