“JAMAICA has one of the worst tax systems in the world, ranking 173rd out of 181 countries in the overall ease of paying taxes, 175th in the number of required annual tax payments, 148th in the time required to pay taxes, and 133rd in the total tax rate.”

This quote is from page 40 of the Medium Term Socio-Economic Policy Framework (MTF) for 2009-2012.

The MTF “is the main mechanism for translating Vision 2030, Jamaica’s long-term national goals and outcomes into action. The MTF 2009-2012 is the first in the series but it is clear that many aspects of the plan are not being implemented.

Last week I covered the national strategies relating to security and safety, pointing out the limited progress. This week I focus on ‘A stable macroeconomy’ and the four accompanying strategies that were to be the focus for 2009-2012:

1. Ensure fiscal and debt sustainability.

2. Develop an efficient and equitable tax system.

3. Maintain financial system stability.

4. Maintain price stability.

I was fortunate enough to attend Mayberry’s monthly investor forum last week Wednesday where the Hon Audley Shaw, minister of finance and the public service, was the guest speaker. His speech, ‘2011; Opportunities and Risks’ looked at the achievements of 2010 and then presented a vision for 2011. He also took questions and provided important answers, one of which was a question from me on tax reform.

While his speech mentioned “tax reform” a number of times, no specific timeline was given, and when specifics were presented they had to do with eliminating stamp duty on commercial paper and corporate bonds, all welcome reforms but not the most important ones for many people.

To be fair, his list of achievements did correlate better with actual MTF plans than for security and safety. I have placed Shaw’s list under the related national strategy and included the relevant key actions for 2009-2012 so that we can better understand them.

1. Maintain Price Stability

Shaw indicated that inflation will be about eight per cent at the end of the fiscal year and that Jamaica has had a stable exchange rate for one year so far.

2. Maintain Financial System Stability

Some of the key actions listed in the MTF include strengthening the legislative and regulatory framework for the financial system. Shaw included achievements such as legislation related to establishing a credit bureau and the omnibus banking bill that would consolidate the various regulations of deposit-taking institutions and finally eliminate any existing inconsistencies.

While Shaw did not mention it, one should also note that no financial institution has had to make use of the emergency fund created by the IMF and the Government.

3. Ensure fiscal and debt sustainability

The JDX has given us “breathing room”, according to Shaw, but he also said that “it is not an end in and of itself” which is a welcome view since money still has to be paid to bondholders at a later date. Jamaica has been able to secure loans at rates between 0.63 per cent and two per cent, some up to five per cent, a far cry from the rates under previous administrations. The country also has record gross foreign exchange reserves and the US$ bond coming due in mid-2011 will be replaced with new notes at “single digit rates”, not the legacy of 11.75 per cent he inherited.

He also pointed out the divestments of Air Jamaica and the sugar factories, transactions which have reduced the yearly debt burden they imposed. The 16 per cent stake in Caribbean Airlines now held by the Government of Jamaica is also now worth around US$80 million based on the current asset base of US$500 million.

Clarendon Alumina has required a subsidy of some US$200 million since 2007 and they are close to divesting their shares, plus numerous other divestments are on the table. They also are now seeking to re-finance Highway 2000 because of the losses there.

In all, progress has been made in those three areas but very little has been made in the area of developing an efficient and equitable tax system.

When I asked Mr Shaw about Jamaica’s poor rankings worldwide, as indicated at the start of this article, his response was lengthy but contained important pieces of information.

He first said that such poor rankings are not things he would like to be associated with and intended to work on improving each of them. Cabinet had given directions such as to eliminate many of the current waivers and to REDUCE taxes over time.

I mentioned the famous Matalon report and Shaw’s response listed a number of reports and studies that have been done over many years and said quite pointedly that the time for more studies and reports was over. It was “action time now” and that many of the recommendations needed to be implemented this year.

In terms of timelines, he indicated that he would be aiming to remove stamp duty and transfer tax on corporate bonds and commercial paper, as well as transfer tax on loan transfers by April. He admitted that other reforms could take until the rest of the year but that they would try for the end of the calendar year at the latest.

To give readers an idea of what they should expect, I will list the priority strategies listed in the MTF under tax reform:

1. Implement fundamental tax reform to increase efficiency, simplicity and equity of the tax system.

2. Improve and rationalise tax administration and payment processes (Simplify tax procedures and number of payments and develop and implement amnesty and voluntary tax compliance to raise revenues are key actions).

3. Improve tax compliance in the informal sector by shifting burden of taxation to consumption.

4. Carry out reform of incentives system to the productive sectors.

Jamaican companies and taxpayers, especially PAYE individuals, would certainly welcome a reduction in the number of payments as well as a shift to more consumption-oriented taxation which widens the tax net.

Bringing more of the informal sector into the tax net benefits the small number of tax-paying Jamaicans who have been burdened with tax increases over the last few years and, following plans that have been put together in the past, should allow businesses to be able to better plan for the future and have reasonable expectations of how tax policy will evolve.

Shaw has made progress in three out of the four areas under Vision 2030 and we should give him credit where it is due. However, taxation policy over the last few years has seemed haphazard and I hope that in 2011, based on his own answers, we will finally see a cohesive tax policy, strong tax reform, no more last-minute taxes that catch companies by surprise, no more need to back-track on announced taxes, and no more squeezing of PAYE workers.

Shaw’s speech contained a critical sentence: “When we make decisions, they must be in the long-term best interests of the country.” He also said that “it takes courage to do what is right”.

I would argue that some of the tax decisions taken in the past have not been in the long-term best interests of the country, but the reforms that should take place in 2011 would be a great start.

I hope that Shaw demonstrates the courage that he talked about because I would hate to see Jamaica in 2012 still having “one of the worst tax systems in the world”.

David Mullings is the Future Leaders Representative for the USA on the Jamaican Diaspora Advisory Board. He is co-founder of Random Media and Kaizen Interactive and has an MBA with concentrations on International Business and Marketing. He is on Twitter at twitter.com/davidmullings and Facebook at facebook.com/InteractiveDialogue