'Comprehensive tax reform, no piecemeal'

Chamber, JMA add their voices

Friday, July 05, 2013

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TWO private sector lobby groups have heaped more pressure on the Jamaican Government to implement sweeping tax reform.

The Jamaica Chamber of Commerce (JCC) and Jamaica Manufacturers' Association (JMA) in separate statements called on the authorities to urgently make broad-based changes to the tax policy, saying the measures are desperately needed to stimulate economic growth. They added their voice to calls from the Private Sector Organisation of Jamaica (PSOJ), which last week made several proposals, including the elimination of input taxes for exporters and dropping corporate income tax to 15 per cent from 25 per cent.

The JCC said comprehensive tax reform was long overdue, noting that the last one occurred in the 1980s.

"Virtually all tax reform measures since then have been piecemeal, and designed almost solely to increase tax revenue to meet budget shortfalls caused by Jamaica's continuing lack of growth," the JCC, which is led by Francis Kennedy, said yesterday.

"The JCC is calling for a comprehensive tax reform that promotes exports through full integration with the international marketplace. We believe this is the only way to promote the faster economic growth required to lift ourselves out of Jamaica's current debt trap," added the organisation.

According to the JCC, "Jamaica's last best chance for economic transformation" is the country taking advantage of its location and transforming into one of the world's top logistic hubs, similar to Singapore, Dubai, Rotterdam and Panama. But, noting that competing nations are more business-friendly with much lower corporate tax rates or extensive incentives, the JCC said Jamaica is throwing away the opportunity out the door with its prohibitive tax policies.

"To have any chance of becoming an English-speaking 'Gateway to the America's', specifically the alternative to Panama or Miami, we will require a tax and tariff regime that is far more competitive," the JCC said.

"Moving from import substitution to an export-led growth strategy first requires that we remove all the disincentives to production," the organisation continued. "It makes no sense to put customs duties on raw materials, packaging or capital goods. The same is true for user fees that are a large multiple of the costs of customs administration and therefore simply act as a further tax on exports."

Increased tax measures applied on an ad hoc basis have negatively impacted cash flow and the competitiveness of locally manufactured products, along with the overall viability of businesses, the JMA said.

"Proper consultation with stakeholders must take place, to ensure that our businesses do not relocate to countries that are more enabling to investors," said the lobby group for the island's manufacturers.

The JMA, which is led by Brian Pengelley, suggested that the country look at initiatives that it said have enabled manufacturers to thrive in other countries, such as duty-free importation of raw materials as well as the deferment of taxes such as GCT and port charges, until the goods have been sold.

Both the JCC and the JMA believe that tax reform should largely be based on proposals made by the Private Sector Working Group (PSWG) last year.

"The starting point for any such competitive tax reform must be the PSWG's proposals... which represented well over six months' work, and were extensively modelled, including with international expertise provided through the IDB and the support of the Ministry of Finance's tax policy division," the JCC said.

The JMA, noting that solutions for Jamaica cannot be a "one-size-fit-all approach" done by external sources with limited understanding of the country's issues, added: "The PSWG approach was a full recommendation on all taxes and not just for incentives to the business sector. The private sector is calling for taxation reform that is simple, broad-based and enforceable."

To enhance productivity and innovation, manufacturers are required to retool by investing in new equipment, introducing new business processes and training staff, the JMA said, noting that incentives must seek to address this. Against this background, the organisation said it is looking forward to the introduction of the Omnibus Incentive Legislation.

"The JMA looks forward to an outcome, which will empower each Jamaican to earn a living through legitimate channels to raise our families and spur medium and long-term economic growth," the organisation said. "Other key factors which are cross-sectoral that must be addressed speedily are matters of transaction costs and time, as a result of bureaucracy, high energy and security costs."

PSOJ president Chris Zacca last week argued that Government has given up more taxes through waivers on imports under the Caricom Treaty than through tax incentives afforded to Jamaican manufacturers and tourism entities combined, according to PSOJ calculations.

"Can it be justified that we are incentivising Trinidad to create jobs for Trinidadians while at the same time calling for removal of incentives locally?" Zacca asked rhetorically in his address at the UTech Hall of Fame ceremony.

He reasoned that the cutting of input taxes and lowering of the corporate income tax rate would help with the elimination of distortionary tax incentives, while creating a globally competitive economic environment for investment in Jamaica.




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