EDITORIAL: Politics of taxing informal sector

The proposal by the Institute of Chartered Accountants of Jamaica that Government apply a flat tax rate to persons who operate in the expanding informal sector has some merit, and we regret that it was given the cold shoulder by senior officials considering a modern tax design for our country.

Former Finance Minister Omar Davies and Investment Minister Dr Christopher Tufton reportedly questioned the practicality of the proposal made during a recent meeting of the Committee on Tax Measures and appeared not to like the idea of a presumptive tax.

Admittedly, expanding tax revenue to boost government revenue and ease the burden of the PAYE is no easy task. Taxing the informal sector is particularly difficult because of the way in which its players operate without proper record-keeping.

Various measures have been implemented over the years in an attempt to broaden the taxpayer base and to discourage tax evasion. These initiatives have failed spectacularly, and tax evasion in Jamaica can only be described as pervasive.

Given that more than 40 per cent of the overall economy falls within the informal sector, it is imperative that creative means be found to get such stakeholders to bear their fair share of the burden.

Tax specialist, Mrs Ethlyn Norton-Coke, has referred specifically to taxi drivers and vendors, but the activities within that sector are wide-ranging: among them agricultural pursuits, including horticulture; the food sector, including restaurants; and services such as hairdressing, barbering and dressmaking.

"They make money but they are not filing a return or anything. Charge them a flat rate, whether it is $15,000 or $30,000. If they feel that amount is too much, then they can file a return, because right now, you (Government) are not getting much out of them," Mrs Norton-Coke told the committee.

learning from others

We would add that doing nothing to collect would disincentivise compliance among the law-abiding.

"What is a fair flat rate?" was the question asked of Mrs Norton Coke. Other countries have tried this approach and Jamaica can learn from them. The Tax Administration needs to examine the proposal and refine it before deciding on the numbers.

Jamaica is long overdue for tax reform. While the politics of taxing the informal sector may result in very little happening over the short run, we believe a prudent government must exploit the potential in this large, yet informal sector.

Dr Christopher Tufton was seemingly stuck on the challenges these persons would face in filing annual returns. One remedy for this is to establish an enabling environment with a huge investment in customer care at revenue departments so that a taxpayer would feel confident to walk into any tax office and get advice on administrative requirements and assistance to become compliant.

We agree with Dr Tufton that in pursuing the principle of a flat tax, a public education and sensitisation campaign would be desirable to help promote a culture of compliance. If properly pitched and organised, people would feel proud to become taxpayers and contribute to national development.

Bottom line: Voluntary compliance will only increase when the public perceives that taxes are being invested in their communities to improve infrastructure and provide social amenities. In a way, effective and efficient tax administration calls for mutual trust between the people and those who govern them.

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