'Red Paper' needed on tax reform

Wednesday, November 28, 2012

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Bad economic policy often comes as either ill-conceived, unworkable policy or policy that is badly timed, meaning it's too late to make a difference. In some cases, policy can suffer from both incorrect design and being too delayed in its application.

Tax reform in Jamaica falls into the last category because it is still born as it is not yet formulated and it is coming far too late to make a difference.

No one doubts that our taxation system is not serving the optimum interest of the economy. It has no overarching rationale and therefore is not a template for simulating economic growth. Plus, it does not yield an amount of taxes that approaches the taxable capacity of the country. The system lacks equity and transparency, it is too complex for taxpayers, it has difficulty in enforcing tax compliance and its administration is inefficient.

Tax reform is an important signal to the International Monetary Fund (IMF) which is insisting on it, the rating agencies and the local and international financial markets, because it is a critical indicator of debt sustainability. Hopefully the White Paper tabled last week will be sufficient to satisfy the IMF.

In our view, neither the May 2011 Green Paper nor the current White Paper provides any specifics on the reform of tax policy. The White Paper is merely a starting point for a discussion because it sets out in the broadest conceptual terms the principles which should inform and guide tax reform. This would be fine if Jamaica had the luxury of time but the country does not, as is evident in the fact that the economy continues to be in a crisis. What Jamaica needs now is, and you'll pardon us if we coin a phrase, a "Red Paper" on tax reform, given the need for great urgency.

The national debate on tax reform began in earnest in November 2004 when "Final Report of the Tax Policy Review Committee to the Government of Jamaica", popularly known as the Matalon Report, was completed.

The main recommendations of the report were not implemented by the then Minister of Finance Dr Davies but it remained a basis for discussion when the Bruce Golding administration was in office. In April 2009, Junior Finance Minister Don Webhy was emphatic in stating: "The Matalon report is a very good report and will be used as a key part of the process of preparing the tax reform portion of the 2009/2010 budget."

When the People's National Party (PNP) returned to power in December 2011 it inherited this as part of a policy agenda not executed by Mr Audley Shaw. The journey continued with the establishment of a bipartisan Parliamentary Committee on Tax Reform which received submissions from the private sector and civil society.

Without doubt, both political parties are culpable in the failure to define and implement tax reform, which has always been a requirement of concluding an IMF agreement.

Common to the paralysis of the design and implementation of tax reform is the weak technical capacity of the Ministry of Finance and the unwillingness of the political and technical levels to accept the advice of experts from multinational financial institutions.

The private sector has contributed much and the only challenge is to balance business interests and the national good. Civil society, especially the trade unions, have not said much.

If Jamaica does not have tax reform after nearly a decade of talk then it is a societal failure in which we are all culpable.




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