9 months ago
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Experts in accounting and economics have lauded Jamaica’s seventh straight budget without new taxes as a plus amid the country’s push for economic expansion.
Experts in accounting and economics have lauded Jamaica’s seventh straight national budget without new taxes as a plus amid the country’s push for economic expansion.
The general argument is that the fewer tax dollars demanded of a firm the more it would theoretically have to reinvest in the business to generate more profit.
In that scenario the government would not be left out of pocket in the long run, it’s argued, since the more the firm expands and grows its earnings the more it will eventually pay over to the authorities even when its tax rate remains untouched.
Jamaica is currently headed towards a new record for tax collection in the coming fiscal season, a target that, if reached, would be just $75 billion shy of a trillion dollars.
“This is the seventh consecutive year that no new taxes have been imposed and the ninth consecutive year when viewed on a net basis. This is a significant achievement for Jamaica,” noted the Brian Denning led-tax team at PricewaterhouseCoopers Jamaica in their 2024/25 Budget review.
While the path to national development is paved with tax receipts, the team opined: “This does not mean imposing new or higher taxes.”
Instead, PwC argues that the direction to take to improve revenue flows is by seeking ways to “improve performance, eliminate inequities and enhance compliance.”
The Jamaican government has devised a budget of $1.3 trillion for the fiscal year that will run from April 1, 2024 to March 31, 2025.
On Tuesday, Finance Minister Dr Nigel Clarke told Parliament and the country how the government expected to finance the budget while outlining the plans and programmes within it.
Rather than new taxes, the government expects to forego $25.1 billion of the taxes it could have collected. However, the budget numbers indicate that the Holness administration will claw four times more than that amount out of Jamaican taxpayers in the same period.
For the fiscal year that will end in two weeks, the government estimates that tax collections would be around $825 billion. In the coming year ending March 2025, it expects to outperform that by $100 billion, even with the giveaways announced on Tuesday. The projection is for collections of around $925 billion in taxes.
Changes in tax policy can be disruptive for businesses, especially where companies have to go on a learning curve over new tax types.
Samuel Braithwaite, economist and lecturer in the Department of Economics at the University of the West Indies, says keeping taxes unchanged is “definitely a good strategy”.
“What you must appreciate is that as economic activity expands the government will of course get more revenues,” he said. “No new taxes doesn’t mean no increase in tax revenues; it means no changes in the tax code.”
Braithwaite explained that keeping taxes at current levels serves to benefit firms which don’t have to adjust their operations to deal with new types of taxes or level of taxes.
“What is not often said is that it is costly to administer tax. So if GCT goes to 20 per cent that is effectively a new tax and it requires firms to adjust their accounting systems to deal with that new tax level; that process is costly,” he said.
Jamaica was recently upgraded by rating agency Fitch in part due to its debt reduction at a time of growing tax revenue. Fitch noted that over a decade Jamaica cut its debt at the third fastest pace in the world, behind Ireland and Iceland. The public debt as a proportion of the size of the economy or GDP dipped from 135 per cent to 72 per cent over the decade.
“The debt to GDP ratio is falling. It is this management of the fiscal house which is good,” added Braithwaite.
The nominal size of the debt first surpassed the $2 trillion mark in 2019/20 and currently hovers at $2.2 trillion, Minister Clarke said on Tuesday.
The tax giveaways in the budget will be funded by government selling some of its securities.
The costliest measure relates to a $20,000 rebate for each taxpayer who earns under $3 million. It will cost $11.4 billion. Denning and his team cautioned that the “roll-out of such a large transfer scheme for a payment of $20,000 on a potentially one-off basis might be costly to administer vis-a-vis the relative benefits provided”.
The second biggest measure relates to the raising of the income tax threshold to $1.7 million from $1.5 million. It’s projected to cost the government $8.9 billion in foregone taxes. The income tax rate remains at 25 per cent for individuals. Those earning above $6m are subject to a rate of 30 per cent.
Meanwhile, companies also pay a corporate rate of 25 per cent but regulated firms pay 33.33 per cent.
What that means says Allison Peart, a tax expert and managing director of A. Peart Advisory Services, is that some people end up paying a higher tax rate than their employers.
This creates a distortionary tax effect which is difficult to enforce in Jamaica, she noted.
Peart also raised the issue of the timeline for income tax filings, saying there had been undertaking in the past to separate personal and corporate filing dates. Currently everyone is due to file income tax returns by March 15 of each year.
But Peart is batting for deadlines of April 30 and June 30, respectively.
“So instead of people rushing to meet the tax deadline you would have a rolling date,” the tax expert said. “If the first world gives so much time to file, then why are we rushing for March 15?”
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