EDITORIAL - Gov't must reimburse firms' and retirees' withheld tax

Finance Minister Audley Shaw will have many issues with which to deal when he opens the Budget Debate today and explains how he will finance the Government's $545-billion Budget and meet the deficit target of 4.5 per cent of gross domestic product.

In these circumstances, there is a tendency of ministers of finance to waffle and attempt economic sleight of hand.

But at least on one issue, this newspaper expects, and insists, that Mr Shaw be forthright and frank: how he intends to bring the Government in compliance with the Jamaican Constitution by ending its unlawful expropriation of people's property.

Chapter 3 of the Constitution prohibits a person's property, "of any description", being compulsorily taken and/or acquired, but for a few exceptional circumstances. In any event, there must be "prescribed principles" to determine compensation.

Section 15 of the new Charter of Rights, which replaces Chapter 3, makes the same point - but is set out with greater clarity.

badgered by the gov't

The issue that, in our view, offends these sections is how the Jamaican Government - the Golding administration and previous People's National Party ones - deals with the withholding tax on interest income it collects from financial institutions.

Under the law, interest earned is subject to a 25 per cent income tax that banks, and others which pay, remit directly to the tax authorities. However, persons who have reached the age of retirement are exempt from the tax, and so, legally, are to be reimbursed; pension funds, too, are exempt from the tax.

Critically, the withholding tax is not a separate tax from the income tax that individuals and companies must pay on their incomes. In that regard, the withholding tax is a prepayment against their tax obligations, to be reimbursed if there is no tax obligation or overpayment.

The problem, however, is that the Government has failed to meet its obligation to persons of retirement age, pension funds, or firms. It does not reimburse, or reimburses when or if it feels. Indeed, it is estimated that the Government owes pension funds and retirees around $8 billion, and perhaps more to firms.

an unfair reality

The upshot: pension funds are denied the cash to invest for the benefit of their members, and, in tough economic times, firms, deprived of their money, are required to take on debt to keep their operations going.

To add insult to injury of individuals and firms being denied the enjoyment of their property - in breach of the Constitution - there is no compensation for the opportunity cost incurred and damage suffered from the action of the Government.

For example, the law sets out no specific period for the Government to reimburse the withheld tax, nor does it impose a penalty for this unconstitutional behaviour. This is quite unlike the situation with citizens. For example, if individuals or firms don't pay their taxes, they are subject to interest and penalty interest.

Minister Shaw must now provide a bankable timetable for clearing the arrears; establish in law a reasonable period for reimbursements; and offer market rates on the debt if that time frame is not adhered to. Other than that, what the Government is doing is taking unauthorised, interest-free loans from citizens, without people having any assurance if, or when, it will be repaid.

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.