'A national disgrace' - Matalon laments low property tax compliance

BY ALICIA DUNKLEY Observer senior reporter dunkleya@jamaicaobserver.com

Friday, March 16, 2012

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CHAIRMAN of the Private Sector Working Group (PSWG) Joseph Matalon has described as a "national disgrace" the low and declining rate of property tax compliance in Jamaica.


Matalon, in a more than three-hour-long submission to the Parliamentary Committee on Tax Reform at Gordon House in downtown Kingston Wednesday, said he was having trouble reconciling why property taxes have moved from contributing over 3.5 per cent of the country's Gross Domestic Product (GDP) in 2003 to just about 0.1 per cent of GDP in 2009.


"Different from the PAYE (Pay-As-You-Earn) system, the tax base is immovable; it cannot easily be hidden and therefore, that we should have a compliance rate in 2010 which amounts to under 50 per cent of the total liabilities for property tax collected is truly a national disgrace.


"Added to that is the lack of regular updates to the valuation rolls. The last valuation roll was completed in 2002, some 10 years ago, and it also serves to depreciate the value of the property tax revenues that we are generating even at full compliance," Matalon told the group. "I think this lack of compliance, lack of updating the valuation base, leads to a higher level of regressivity in the tax system," he added.


In the meantime, the PSWG chairman said the challenges dogging the current tax regime were the myriad incentives, exemptions, concessions and waivers which significantly narrow the tax base.


According to Matalon, high tax rates and onerous compliance burdens encourage evasion while the cumbersome tax system creates loopholes and inefficiencies. He said the culture of non-compliance, corruption and manipulation of the rules to avoid tax in addition to limited resources to pursue the non-compliant formed part of the line-up of challenges.


On the matter of proposed widening of the list of GCT-exempt items while at the same time lowering the tax from the current 17.5 per cent to 12.5 per cent, Matalon said "these were ineffective and open to abuse as mostly the middle and upper income citizens benefit from GCT exemptions".


According to Matalon, of every $100 of revenue that the Government of Jamaica gives up through exemptions only $11 actually benefits the poorest 20 per cent of the population while $28 benefits the wealthiest 20 per cent of Jamaicans. He said exemptions also provide an opportunity for the fraudulent misclassification of taxable goods at the point of importation and at wholesale or retail sites. He argued further that GCT exemptions have failed Jamaica pointing out that at the current GCT rate of 17.5 per cent, the exemptions which are proposed to be removed will cost the country $22.6 billion.


"The rationale for most of these exemptions is to provide relief for the vulnerable but middle and upper-income Jamaicans benefit from the lion's share," Matalon told the committee Wednesday.


He was also at pains to point out the low level of compliance among companies as it related to the filing of returns. Matalon said of the 62,477 companies registered to operate in Jamaica, only 17,147 are registered for income tax purposes, with only 6,065 or approximately 10 per cent, filing income tax returns on an annual basis. He said it was estimated that only about 3,000 companies in Jamaica pay any tax at all.


Finance Minister Dr Peter Phillips, who chairs Parliament's Tax Reform Committee, said the registering of companies needed to be reviewed after being told that not all businesses are registered to do business as some are formed just to own assets and are therefore able to remain on the books but escape filing returns.


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