Dear Editor,

The prime minister and the honourable minister of finance and the public service have unavoidably imposed additional taxes, both direct and indirect, on the taxpayers of this country in an effort to finance the Government’s programmes and activities with less reliance on borrowing from the local and international financial markets.

There can be no discussion that a great deal of analysis and creativity went into the latter package, which saw the introduction of a progressive tax system on employees, measures to improve the collection of GCT on imported goods, increases in the rates of SCT on petroleum products and increased GCT on luxury items.

These measures seem quite effective and fair in ensuring that persons who avoid and evade taxes share some of the burden long carried by persons on the PAYE system, like myself.

Whilst for the layman, the additional SCT on petroleum products is seen as burdensome, in reality the increase in the Income Tax threshold to just over $441,000 will serve to cushion the impact of the gas tax on employees. A practical example will demonstrate my point.

My wife and I (both employees) are expected to see our combined disposable income increase by around $5,000 per month based on the increase in nil rate by approximately $120,000 respectively. On a monthly basis we spend around $16,000 on petrol for our two cars. This translates to about 205 litres of gas per month. With an increase of an average of $10.78 per litre, we expect to incur an additional $2,210 in our gas bill.

Our net gain from the increase nil rate over the increased SCT is therefore $2,790 ($5,000 – $2,210) per month or $33,480 per year. Commuters on the PAYE system are also likely to realise a net gain, even after increases in bus/taxi fares take effect.

But what about the additional taxes imposed on other goods and services? Will the increased disposable income be sufficient to offset these amounts? Again, using my family’s situation to extend my analysis, I believe the answer to this question is in the affirmative.

Our monthly grocery bill is $30,000 and our last light bill was $8,200. $15,000 of our monthly grocery bill relates to taxable items, implying that our bill on this expenditure item will increase by around $150 per month. ($15,000 times one per cent increase in GCT from 16.5 per cent to 17.5 per cent). Our light bill is forecast to increase by approximately $250 based on the new GCT of 10 per cent imposed on electricity. ($8,200 – $5,700 times 10 per cent). $5,700 represents the tax-free charge for the first 200 kWh of electricity.

In summary, whilst my family household disposable income will increase by $5,000 effective January 2010 in keeping with the increase in the income tax nil rate, our increased monthly expenditure based on the additional taxes imposed by the Government will be around $2,610, thereby leaving us with a net increase in income of $2,390.

This will be the reality for most individuals in the middle to lower level income bracket who are on the PAYE system. Families with one working adult are likely to gain around $1,200 per month. Of course, we in these income categories are not concerned with the increased GCT on jet skis, large LCD/Plasma TVs, shotguns and the likes.

Those who are earning income and not remitting taxes, as well as the wealthy will be the ones to bear the full effect of the gas tax and the increase in GCT on taxable goods, as they will have no gain from the increase in the Income Tax threshold. However, the Government must ensure that its social safety net is adequate in protecting the poor and those not earning an income.

The tax package, in my view, is therefore on the correct path, with the aim of placing greater burden on the self-employed and companies who fail to remit taxes via the Income Tax or GCT system.

The Tax Department and JPS must ensure that there is full understanding of the implication of the newly imposed GCT on electricity exceeding 200 kWh per month. Prior to January 1, electricity was exempt, hence JPS treated the GCT paid on its inputs (example, motor vehicle expenses, stationery, telephone, advertisement, auditing fees, rent, etc) as an expense and, by extension, a determinant in its billing price to customers.

Under the new policy as outlined by the Tax Department, JPS will now become eligible to claim as an input tax, GCT relating to its taxable inputs. This will serve to offset the net GCT remitted to the Inland Revenue Department. I hope this was taken into consideration by the tax authority in projecting the likely inflows from the revenue measure.

Further, with JPS being able to recoup the GCT paid on its input, which were previously treated as a cost item in its pricing mechanism, the Office of Utilities Regulation must ensure that this saving is passed on to consumers in the form of lower unit price of electricity, before GCT is added.

We anticipate a public announcement from Minister Samuda in this regard.

keidari@yahoo.com

PO Box 375, Spanish Town PO