EDITORIAL - Roll back income-tax rate

Not many people, we expect, would have been surprised by Audley Shaw's disclosure last week that the adjusted income-tax rate on earnings above $5 million has not collected the expected amounts since it came into effect in January 2010.

For, as Mr Shaw told the legislature, people in that income bracket usually have their earnings/salaries structured in ways that are most tax-efficient for themselves.

The genesis of the income-tax adjustment was the administration's scramble in December 2009 to find alternatives to a tax package, aimed at raising $21.8 billion, that the public had rejected.

It was part of the original proposal by Mr Shaw that the general consumption tax be raised to the current 17.50 per cent. Its cover was also to have been widened to encompass a range of previously exempt or zero-rated goods and services. The Government retreated from most of these.

The normal income-tax rate in Jamaica is 25 per cent. But among the compensatory measures for the collapse of the administration's tax package was an introduction of a rate of 27.5 per cent for earnings above $5 million and 35 per cent above $10 million.

These measures are to expire in March and were expected to bring in $1.317 billion.

Below expectations

Mr Shaw did not give figures when he spoke in the House last week, but said the measure had performed below expectations. That would have contributed to the $5.25 billion, or 12.2 per cent, shortfall in the projected take in pay-as-you-earn (PAYE) inflows for the first nine months of the fiscal year, up to the end of December 2010.

There are lessons for the Government somewhere in these developments.

One, perhaps, is that existing income-tax payers, particularly those caught in the PAYE net, feel set upon. They are called on to pay while others easily escape.

The upshot is that the December 2009 hike might have been an incentive for those at the higher end of the earning spectrum, and with the wherewithal to do so, to get creative with income-tax arrangements. It would be a shame that high-income earners were so badly spooked that they did not only employ legitimate tax avoidance, but ensured that their cash bolted offshore and out of the reach of the Jamaican tax authorities.

Revise income-tax policy

It would seem, to us, that in crafting his Budget for the new fiscal year, starting in April, Mr Shaw should pay serious attention to tax policy.

He might find it useful not only to roll back the upwardly adjusted rate, but aggressively move to bringing into the tax net perhaps 70 per cent of the income earners who the administration suggests do not pay their share.

Such a strategy demands that the Government give the tax administration agency full support to do the job, including the resources about whose absence its head has publicly complained.

If this happens, the administration could well find itself lowering the general rate of income tax, which is where it should be heading as part of a strategy to encourage consumption and growth.

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