EDITORIAL - Seriously discuss tax reform

There is beginning to be a flickering sign that Jamaicans may yet get a rational discussion on tax reform.

Up to now, the only coherent and internally consistent response to the Green Paper published by the Government last May are proposals of the Private Sector Working Group, spearheaded by Joseph M. Matalon, the president of the Private Sector Organisation of Jamaica.

Unfortunately, there has been much hot, knee-jerk, ideologically populist rhetoric against the private sector's proposals, but little, if any, alternative to them, or constructive engagement of them.

That, though, could be changing, judging from the civil interventions this week by a group called the Jamaica Civil Society Coalition (JCSC) and the Bustamante Industrial Trade Union, through its president, Kavan Gayle.

Among the private sector's proposals is for the Government to lower the rate of general consumption tax (GCT) from 17.5 per cent to 12.5 per cent, but at the same time broaden its coverage to all but a handful of products.

That would be in keeping with the Government's aim of shifting the burden substantially to taxation. But the previous administration, in launching the Green Paper, was more inclined towards reducing, rather than all but eliminating, the number of products that were either exempt, or zero-rated, for GCT.

Perhaps not unexpectedly, the Joe Matalon group has been accused by the ideologues of insensitivity towards the poor. For the GCT proposal, they argue, would mean an increase in the cost of goods consumed by poor people. The critics also attack the private sector's call for a lowering of corporate income tax as merely advancing corporate self-interest. These attacks are on 'straw men'.

Such criticism overlooks several points, including the fact that of the more than $100 billion 'lost' to the Government because of current GCT exemptions, 28 per cent goes to the wealthiest 20 per cent of the country. Only 11 per cent goes to the poorest 20 per cent. In fact, the 'subsidy' to the poorest 40 per cent is around the same as what the top 20 per cent gets.

Distribute subsidy evenly

So while we appreciate the JCSC's suggestion for a one-year phasing of any change to the GCT application, it makes sense, to us, as the private sector suggests, to give directly to those who would be affected. That amount, an estimated $2 billion, would go to the poorest 40 per cent of Jamaicans and enable them to maintain their consumption at current levels. Finding a way to efficiently distribute this subsidy to those who deserve it can't be beyond the capacity of Jamaican policymakers.

Moreover, it is unlikely the $7.6 billion in additional revenue that will eventuate from widening the GCT net will have any significant negative impact on consumption, at least in the medium term. Wealthy people are unlikely to significantly reduce consumption.

Moreover, the private sector's proposal for tax-free income of $499,000 and applying a rate of 15 per cent on the next $600,000 will leave more cash in the pockets to more than 260,000 people. That will help to drive consumption.

We understand Mr Gayle's question about lowering corporate tax from 33.3 per cent to 15 per cent (plus a 10 per cent dividend tax). But jurisdictions with lower corporate tax rates tend to attract more investments, which means job creation.

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.