Editorial | Fix 20 per cent duty scheme

The big duty rebate on vehicles that government workers are allowed twice a decade was the big bugbear of the recent job reclassification and salary negotiations between the Holness administration and public sector unions.

The finance minister, Nigel Clarke, wanted to end the concession. The unions said no. They couldn’t agree. The matter was kicked down the road. The upshot: the 80 per cent break remains in place.

But the Integrity Commission’s (IC) claim that Parliament’s former Speaker Marisa Dalrymple-Philibert abused the arrangement, and this newspaper’s reporting identification of the gaping loopholes in the scheme – which costs taxpayers hundreds of millions of dollars annually – underline the urgent need for the matter to be settled once and for all.

Otherwise, Dr Clarke should just accept the status quo and adjust for it in the fiscal accounts. The better option, though, is that he works hard with the unions to find a formula that makes sense to both sides. The other way encourages cheating.

Under the system, every five years civil servants and public officials are allowed an 80 per cent rebate on the duties of motor vehicles, up to a CIF (Cost, Insurance, and Freight) value of US$35,000, approximately J$5.6 million. Recipients of the scheme are supposed to keep the vehicles in their ownership “and control” for at least three years, before they can be divested. If the vehicles are sold before that time, Jamaica Customs can claw back the duties as well as impose penalty charges.

However, because high tariffs account for a significant portion of the cost of motor vehicles, the scheme has made car ownership not only affordable to many government workers. For plenty others it is a potential source of cash, or a benefit in their gift to distribute.

UNCOMMON

Indeed, as The Sunday Gleaner reported a week ago, it is not uncommon for beneficiaries of the scheme to monetise the concession. Put baldly, they ‘sell’ the dollar value of the concessions, or a part thereof.

For instance, a public servant who is entitled to the rebate, but doesn’t need a vehicle, could buy one on behalf of an unqualified person who makes a saving on the import duties, notwithstanding having to share a portion of that saving with the owner of the concession. This kind of arrangement especially makes sense, and is of greater value to the beneficial owner, if the vehicle purchased is in the higher reaches of the tariff band.

The official beneficiary of the concession, however, has to keep the vehicle in his/her name for three years before it can be formally transferred to the beneficial owner. In some circumstances, apparently, having ‘sold’ the concession, a public servant may buy a less expensive vehicle.

In Ms Dalrymple-Philibert’s case, the IC accused her of failing for seven years to declare a vehicle she bought using the concessions, while the car was under the control of her sister and sister’s family. Ms Dalrymple-Philibert claimed, according to an IC investigative report, that she forgot she owned the vehicle.

The commission said it will criminally charge her for making false statements in her filings. It also recommended that Customs seek to recoup the forgone duties and that the finance ministry recover travelling allowances paid to the former Speaker for use of another vehicle, rather than the one for which she received the concession, as was required by the regulations.

The Government says that over the last four years it relinquished over J$8.7 billion in revenue under the scheme, including J$2.5 billion in 2022/23. Since 2018, it has moved to recover J$83 million, or around one per cent of the tax expenditure on the arrangement over the last five years. Which, on the face of it, isn’t much.

What these figures don’t capture is the real extent of the leakage from fraudulent arrangements.

ARGUMENTS

Public servants will likely rebut with four arguments. First, the duty concession is a negotiated benefit, which is part of their salaries. Second, the reported tax expenditure doesn’t capture the full entitlement to public servants. That ought to be calculated on the highest value to which workers are entitled, rather than the average cost of vehicles bought. The third point is that the government overstates the forgone taxes. Without the concession, civil servants would buy cheaper vehicles. The duties that would be collected by the government if there was no concession would be lower.

Finally, unions will say that the system is not equitable, but highly skewed to the people at the top, who get the highest pay and therefore can afford more expensive vehicles. Which was compounded by the big salary hikes received by this group.

It is in part because of those salary adjustments that Dr Clarke wanted to end the scheme, but for the pushback.

The minister might take the arguments of the unions into consideration and offer a workable compromise: take the average tax expenditure under the scheme, J$2.2 billion a year over the past years, and use the benefit of employees at the lower end of wage scale. Some of that money would be recouped in taxes.