Golding puts alternative income tax plans on table
AMIDST sustained calls from the Opposition and other critics for the Government to reveal the details of its $1.5-million tax relief plan, former Prime Minister Bruce Golding is suggesting that the Andrew Holness-led Administration consider other options such as increasing the overall tax threshold to $1 million.
This, Golding said, could go along with tax rates of 25 per cent for income brackets between $1 million and $4 million; 30 per cent for those earning from $4 million to $8 million, and 35 per cent for those who earn a gross income of above $8 million per annum. These measures would reduce the tax base by 34 per cent, the former prime minister said. “It requires no marginal relief and would cost $9.4 billion, 191,633 persons will benefit and 21,926 will pay more taxes,” he said.
The proposal is one of two put forward in a just published paper for the Hugh Lawson Shearer Trade Union Education Institute (HLSTUEI) titled ‘Assessing the $1.5-million Tax Relief Proposal’. The piece is the first in a series which has been launched by the HLSTUEI, aimed at “providing a forum in which scholarly articles can contribute to the shaping of public policy for the advancement of the Jamaica people”, editor of the publication and director of the Institute, Danny Roberts told the Jamaica Observer. He said three other papers are planned in the series but made it clear that opinions expressed are not those of the HLSTUEI.
Golding said the proposal ,which is one of two “worth considering” is “guided by the need to contain the cost (of reforming the personal income tax system), while boosting consumer spending, provide equity and avoid anomalies. In this way, no anomalies are created and no marginal relief becomes necessary”.
The other proposal is to increase the tax threshold to $650,000 with incremental tax rates of 15 per cent for those earning between $600,000 and $1.5 million; 20 per cent for those earning between $1.5 million and $5 million; 25 per cent for those who gross earnings of $5 million to $8 million annually, and 30 per cent for those earning above $8 million. This, he said, would reduce the tax base by six per cent and would cost $11.7 billion.According to Golding, the tax plan as currently proposed, would “severely” reduce the tax base by 57 per cent, resulting in a revenue shortfall of $9.5 billion. “This does not take into account the need to correct the anomalies that will be created in the margins above $1.5 million and $5 million,” he stated.
At the same time, he noted the uncertainty of some of the measures which the Government had originally said it would use to implement the proposed $1.5-million tax plan, such as the assumption that persons will have more to spend resulting in increased collections from GCT; year-over-year increases in PAYE; collection of tax arrears; and increased tax compliance.
“Much of the additional spend by the range of taxpayers slated to benefit will likely be on non-taxable items – food, rent, school expenses, transportation, etc and care must, therefore, be taken to not over-estimate the additional GCT to be collected. Year-over-year increases in PAYE are already factored into the fiscal projections to deal with inflation, primary balance target,” he stated, arguing also that tax arrears can only be collected once, and that compliance is not guaranteed.
“We have been budgeting for increased tax compliance almost every year with varying, inconsistent outcomes,” he argued.
The former prime minister, who played an integral role in the election campaign for the now ruling Jamaica Labour Party, cited significant anomalies that would be created across several income bands should the $1.5-million tax plan be implemented as proposed. “For example, someone earning $1.550 million is victimised with a 478.6 per cent tax on the extra $50,000 of earnings. In other words he would in effect be charged $239,300 of taxes on the additional $50,000 of income,” he stated, emphasising that persons earning even $1 above the outer band of the various income brackets would be “plunged into significant different tax brackets where the tax rate will be applied not just to the incremental earnings”. He further demonstrated that the income tax rate would be as much as $907,201 to $4.4 million for those earning between $1.5 million and $5 million.
Golding cautioned that it was best not to have to deal with these anomalies in the first place, as having to correct them would be costly, given that the largest group of taxpayers fall within the $1.5 to $3 million band.
Asked about the tax plan at a Jamaica Observer Monday Exchange in March, Golding had said the income tax proposal could work as long as it is implemented in a manner that would not result in anomalies.
Finance Minister Audley Shaw is expected to outline how the government plans to finance the tax relief package when he presents the 2016/17 budget in another two weeks.