Recently (March 2012) the Private Sector Working Group (PSWG), a committee established to provide suggestions on tax reform in Jamaica, submitted an extensive document outlining its outlook and proposals for tax reform. It was based on the premise of equity, simplicity, efficiency, and growth. After reviewing the proposal and realizing some of the ciritical issues affecting the country, I thought it necessary to highlight it here for you my readers.
The proposal first presents some basic statistics about Jamaica and goes on to highlight some challenges and opportunities. Here are some macroeconomic indicators followed by some challenges and other highlights I thought important (full proposal available here).
Jamaica is plagued with high debt, high poverty (almost 20% of the population) and low GDP growth.
- GDP to debt ratio (2011/12): 131%
- Poverty level (2010 est.): 19.6%
- Deficit of (2011/12 est.): -7.6%
- Primary Balance (2011/12 est.) 3.4% vs target 5%
- Average GDP growth rate (2001 to 2010): 0.8 %
Challenges Inherent in the Current Tax Regime
There are many challenges affecting tax collection and compliance in Jamaica.
- Myriad incentives, exemptions, concessions and waivers significantly narrow the tax base
- High tax rates and onerous compliance burdens encourage evasion
- Cumbersome tax system creates loopholes and inefficiencies
- Culture of non-compliance, corruption
- Manipulation of rules to avoid tax
- Limited resources to pursue non-compliant
Corporate Income Tax Compliance in Jamaica
This chart shows tax compliance by companies in Jamaica. Based on the narration on the chart you can see that for the 62,477 companies in Jamaica at the time only 3,000 (estimated) filed stating that they owed any tax.
PAYE Compliance in Jamaica
The graph below highlights the massive amount of Jamaican employees that are unregistered. Almost two thirds of the Jamaican workforce are unregistered and in essence not a part of the income tax network.
Property Tax Compliance in Jamaica
Property tax compliance is also declining.
Tax exemptions are breaks that are allowed for special reasons. However based on their research, these breaks are not benefiting the right people and are also costing the country too much. More information below this chart.
Why GCT Exemptions fail Jamaica
- At the current GCT rate of 17.5%, exemptions which we propose be removed, ‘cost’ Jamaica approximately $22.6B.
- The rationale for most of these exemptions is to provide relief for the vulnerable but Middle and Upper Income Jamaicans benefit more from this exemption
- Estimated price impact on previously exempt items = 6% – 9%
- At the proposed GCT rate of 12.5%, a more targeted mechanism for the vulnerable would cost $2b to more than offset the current level of benefits to the poorest 40% of the population
- Significantly these exemptions also present opportunities for tax evasion through misclassification and misreporting – a further hidden cost of maintaining these exemptions
What do you think about some of the areas highlighted? What do you agree with as it relates to increase tax collection and compliance?