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Gov’t says revenues falling short of target

Opposition opposes plan for new taxes

BY BALFORD HENRY Senior staff reporter balfordh@jamaicaobserver.com

Friday, December 27, 2013    

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NEW tax measures implemented by the Government to support the 2013/14 Budget in April are not yielding the projected revenues, so more taxes are likely by early next year to top up the flow.

Minister of Finance and Planning Dr Peter Phillips and Governor of the Bank of Jamaica Brian Wynter made the admission in their latest quarterly communications with the managing director of the International Monetary Fund (IMF), Christine Lagarde.

The communications were tabled in the House of Representatives on Tuesday as Ministry Paper 136/13, fulfilling the commitment to release the information after deliberations with the Fund.

The Government blamed the revenue situation on lower imports and weak economic and labour market conditions.

However, the Opposition, in its initial reaction, indicated yesterday that it would not support any changes that would result in more taxes for businesses and consumers.

Opposition spokesman on industry, investment, commerce and energy Karl Samuda told the Jamaica Observer yesterday that the Opposition would not support any new tax measures, saying that increased taxation would only create more burden on businesses and consumers and discourage growth and the creation of jobs.

"The Government should be challenging the IMF's view that incentive is inappropriate as countries, the world over, are realising that only with more incentives can we increase production and employment," Samuda said.

According to Ministry Paper number 136/13, the IMF staff review confirmed that Jamaica met all quantitative targets and structural benchmarks for the period April 2013 to September 2013, and was on track to achieve future targets.

The IMF Board, on December 8, completed the second review of Jamaica's performance under the current Extended Fund Facility (EFF) programme. The Fund's deputy managing director, Nayouki Shinohara, noted that implementation of the programme "remains strong", and that "there are tentative signs of a gradual economic recovery".

However, Shinohara stated that the growth agenda needed to be bolstered by speeding up structural reforms to reduce bureaucracy and improve Government's interface with the business community.

Completion of this second quarter review will enable Jamaica to access the third drawdown under the EFF of approximately US$31 million, bringing the total approved to date to approximately US$948 million. The positive second quarter review should also facilitate access to loans from the World Bank and the Inter-American Development Bank (IDB).

But there are obviously some clouds on the horizon, as indicated in the communications from the Jamaican Government to Lagarde, especially in terms of tax revenues and the possibility of new tax measures to finance the budget and meet fiscal deficit targets.

The Government, in its letter to the IMF chief, pointed out that it has implemented all the necessary structural benchmarks included in the programme. However, it explained that economic growth remained weak, unemployment was "much too high", and fiscal performance in the first half of 2013/14 was "mixed".

"Relative to the budget, revenues underperformed mainly due to lower imports and weak economic and labour market conditions," the Government admitted.

For the same reasons, the new tax measures implemented at the beginning of the fiscal year are not yielding the intended results, the Government explained, adding that it had to contain recurrent and capital expenditure to be able to meet the fiscal performance criteria, including the primary balance target, the overall public sector balance target, and the indicative targets on revenues and social expenditure.

However, reforms to strengthen tax and Customs administration and the reformation of the General Consumption Tax (GCT) are expected by next year to assist the Government in closing some of the gaps. Probably the most controversial being the plan for a study of the tax on petroleum products, which would result in the introduction of GCT on petroleum products. (See related story in Auto)

The Government said that the study on the scope for imposing the additional tax on petrol will be done by March, and the conclusions will guide possible implementation next year.

In addition, zero rating for Government purchases will be eliminated, tax exemptions will be reduced and start-up companies will be allowed to claim GCT for excess credit, immediately.

In terms of strengthening tax and Customs administration and processing, revisions will be made to the Revenue Administration Act to strengthen the powers of Tax Administration Jamaica and the Jamaica Customs Administration to collect outstanding arrears, including powers to seize taxpayers' property, harmonised penalties and fines, and mandatory income tax filing for every business by 2014.

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