The Government will introduce new tax measures today, Friday May 13 to compensate for a projected shortfall in revenue linked to its plan to raise the personal income tax (PIT) threshold to $1 million in July. It includes a higher 30 per cent income tax share to Jamaicans earning over $6 million and more petrol taxes.

Analysts say that the government will be taking money from savers and handing it to individuals with the propensity to spend on imports, leading to the likelihood of inflation. All agree, however, that the move towards indirect taxation is commendable.

Minister of Finance and Public Service Audley Shaw indicated yesterday that starting in July, Jamaicans will benefit from relief in income tax payments on a phased basis.

Effective July 1, the threshold ceiling will be raised to $1 million, at an estimated cost of $12.5 billion during the fiscal year. The ceiling will be further raised to $1.5 million on April 1, 2017 affecting a total of about 251,000 PAYE workers.

The current threshold is $592,800.

To compensate for the loss in revenue, the Government is planning on increasing income tax for earners over $6 million from 25 per cent to 30 percent. But as workers in this income bracket will get the benefit of the $1.5-million threshold, by April 2017, the effective tax rate will be less, at about 27 per cent, Shaw pointed out.

In total, PIT changes are expected to cost $12.5 billion during this fiscal year. To compensate, as of today the Special Consumption Tax (SCT) on cigarettes will be increased from rom $12 per stick to $14 raising $57 million; the sct on liquid natural gas and heavy fuel oil will also be increased — raising $1.42 billion; and the sct on petrol will be increased by an additional $7 per litre raising $6.49 billion. Finally, the departure tax will be increased from the original US$20 introduced in 2009 to US$35 raising (to now be charged in US dollars) raising a further $5.3 billion.

Otherwise, Shaw said the Government aims to finance the $579.9 billion Central Government expenditure budget overall through a mix of revenue, grants, loan resources and inflows from the PetroCaribe Development Fund.

According to the Minister of Finance, “More purchasing power in the economy will allow Jamaicans to make more decisions about what they consume.”

Analyst Dennis Chung

The phased basis of the change in income tax was necessary. It had to be done. However, on first impression, I am worried about the inflationary impact especially on the petrol side.

Also, they will be taking money from people with the propensity to save and giving it to individuals with a higher propensity to spend. If there is no increase in productivity, there will be pressure on imports. They need to ramp up production. We really are not increasing productivity, but shifting income around with the net effect that impact on growth is less.

A higher tax rate for those earning over $6 million may mean that less people will be employing helpers. Some more analysis is needed. It is important to move towards indirect taxation — but measures which induce growth are needed.

Analyst Keith Collister

Overall, the tax package was well delivered, and is attractive in many respects, benefitting a lot more people than originally calculated during the election campaign. It importantly combined the important aspect of keeping one’s promise — simplicity — with prudent phasing.

“The emphasis on energy taxation, meaning the Special Consumption Tax on gasoline, liquid natural gas, and heavy fuel oil not only captures the widest possible number of potential taxpayers — close to 100 per cent — but is also in line with the global thrust to a “green” economy, as well as taking into account the windfall effect of the recent drop in oil prices.

“The SCT on cigarettes is good from a health perspective, but is hopefully not such a large increase as to substantially increase informality. The rise in departure tax may impact tourism competitiveness, however, as it is nearly double the US$20 rate originally imposed, and well over double the current rate of departure tax.

“It must also be hoped that the five percentage point increase in the income tax rate for those earning over $6 million is a temporary increase, as occurred during the global financial crisis, as it is likely to be ineffective over time, encouraging income shifting.”