Tax policy divide
Published:Sunday | August 14, 2011 | 12:00 AM
Finance Minister Audley Shaw will next month convene meetings of the Parliamentary Tax Committee, which he chairs, to begin deliberations on reforms to the taxation system.
Shaw has invited submissions from the public to inform the committee's work, which is expected to result in a clear path for reform. The basis of the discussions is a Green Paper that lays out a number of alternate scenarios on income, consumption, and trade taxes.
Manufacturers have long lobbied for a tax structure that provides incentives to producers. But not everyone believes that the structure of incentives ends up as a net plus for the economy.
Indeed, Omar Azan, past president of the Jamaica Manufacturers' Association (JMA), recently voiced his annoyance at economist Dr Damien King's criticism of tax exemptions afforded to manufacturers.
The tit-for-tat symbolised the ongoing divide on taxation reform. Azan briskly responded to closing remarks made by King, who chaired the launch of the World Investment Report on foreign direct investment in Kingston last month.
"I am a little annoyed. Furthermore, you sit on the board of a manufacturing company. It is very sad to know, and if I was the chairman of your board then I would question your .... ." Azan's final comments were drowned out by audience laughter, but he added that the sector contributed J$11 billion more in taxes than the tourism sector, and employs 80,000 people.
King, who heads the Department of Economics at the University of the West Indies, is also a director at Desnoes & Geddes Limited, which manufactures Red Stripe beer. The company trades as Red Stripe Jamaica.
Not biased
"Thank you very much for pointing out that my opinions are not motivated by my personal interest," King responded, rallying his own titters from the audience.
"My being on the board of a manufacturer does not mean I should take a biased position. I hoped you were going to congratulate me on my objectivity."
He added: "It is true that the manufacturing sector pays more taxes than the tourism sector. But that is true because the tourism sector has been even more successful than manufacturers at arguing and lobbying for exemptions on a lot of the taxes that the rest of us pay."
King said that he also "doesn't support" the 20 per cent duty concession allowed by virtue of his job in education. He attempted to resolve the impasse, concluding that both manufacturers and economists want the "same growth and prosperity" for the country.
The manufacturing sector accounts for some 8.1 per cent of GDP. There are 12 separate duty concessions and or waivers listed on the JMA's website as industry incentives including removal of 2.0 per cent customs user fee and waiver of the Common External Tariff on raw material; the waiving of GCT chargeable on the acquisition of machinery and equipment directly related to the manufacturing process; and so on.
Currently, the Golding government, in an attempt to simplify and broaden tax reform, has circulated a Green Paper entitled "Tax Reform for Jamaica". The island consistently ranks as one of the world's worst in terms of payment of taxes based on the Doing Business Report published by the World Bank. King, in a Gleaner column late last month, indicated that the objectives of the tax reform should be:
1. Economic growth: To promote a rise in the standard of living for all.
2. Revenue: To raise additional revenue towards balancing the fiscal budget.
3. Efficiency: To be able to collect taxes due without spending too large a share of that revenue to ensure compliance.
4. Equity: To spread the burden of taxation such that those persons of equal means pay an equal share and those of unequal means pay appropriately unequal shares.
Jamaica's tax code would need drastic reform in order to achieve these four objectives, he noted, then referenced recommendations made by the Matalon Committee on Tax Reform (2005), Tax Reform and Economic Development by Roy Bahl and Sally Wallace (2007), and the Blueprint for Tax Reform (2009).