THE Private Sector Organisation of Jamaica (PSOJ) yesterday bemoaned the Government’s decision to increase income tax for individuals earning more than $6 million, describing the move as a “retrograde step” bound to result in tax avoidance.

As a buffer to the potential revenue loss of $12.5 million for the financial year 2016/17 led by an increase in income tax threshold, the Government has introduced a 5 per cent tax increase to 30 per cent for individuals earning income in excess of $6 million annually. The issue has since sparked much controversy.

“This measure is a retrograde step which takes us back to before the 1980s tax reform and which was not effective when tried by the last Administration. It will also result in tax avoidance measures which will prove a distraction to the country’s fiscal programme,” the sector stated in a release. “The PSOJ suggests that this burden be reconsidered.”

In fact, the burden will be less than 30 per cent, according to Minister of Finance Audley Shaw, who said that when the new threshold is taken into account, the real tax rate will be lower at 27.5 per cent.

The new threshold of approximately $1 million for all employed and self-employed individuals, effective July 1, is more than $400,000 higher than the current threshold of $592,800, and is set to increase of $1.5 million as of April 1, 2017. The PSOJ was quick to note however, that it welcomes the Government’s intent to move from direct taxation to indirect taxation, otherwise called consumption taxes.

The sector reckons that the shift to consumption taxes will better address the compliance challenge the country is facing, where only 326,000 of the 1.15 million employed are on PAYE, while a significant number of registered companies are not tax compliant. Nonetheless, the sector lamented the additional tax on fuel of $7 and SCT on LNG, stating that while its an indirect tax, the measure will have an inflationary impact which will further mitigate the country’s economic reform programme in a climate where energy costs are already high, due in part to the presence of the Common External Tarriff (CET) levied on fuel imports, allowing some CET-exempt sources to price unfairly to Jamaica.

“On this, the PSOJ is once again calling on the Government to remove the CET on fuel imports or withdraw the recently announced SCT in favour of CET placed on fuel from CETexempt sources,” the release stated. Following the budget presentation last week, the Government announced that an assessment conducted by the Bank of Jamaica has made a “very conservative assumption that the numbers will be a 0.2 per cent impact on inflation”.

State minister Fayval Williams also disclosed that based on the new LNG regime, the cost impact to the country will be muted. Additionally, world oil prices have lowered. “The PSOJ again applauds the Government’s stated policy position to move away from direct taxation and stands ready to engage in further consultations on measures towards comprehensive tax reform for Jamaica,” the group said.