AS both major political parties court voters with pledges of income tax relief ahead of the September 3 General Election, Seprod CEO Richard Pandohie is arguing that the issue of tax compliance and loopholes need to be addressed to truly reduce the burden on taxpayers.

While he supports discussions to reduce taxes, because it will increase compliance, he said there is a wide level of tax leakage in Jamaica, and methods implemented must be sustainable.

“When you look around anecdotally or just at what’s happened, there’s a lot of leakages in our society. Leakages on some people collecting general consumption tax (GCT), not paying over leakages at the port; there are leakages all around. I think that if we were to reduce those leakages, it would take some burden off taxpayers.

“I mean, tax is where the Government earns its income, right? And if it [the Government] were to reduce the point at which it is leaking income, then obviously it would reduce pressure on the taxpayers,” Pandohie reasoned.

“There’s a wide level of leakages in Jamaica, and my thing is that when you look at the level of collection on whether it’s land tax or the ports or whatever, if you just go downtown or go anywhere near the town, just walk around, you’ll just see what’s happening. I think if the Government is to strengthen the institutions to allow for more compliance, it would help,” he told the Jamaica Observer.

The Jamaica Labour Party (JLP) leader and Prime Minister Dr Andrew Holness has vowed to reduce the personal income tax rate to 15 per cent from the current 25 per cent, on a phased basis, taking the threshold to $2 million over the next two years, in a move from direct to indirect taxation.

At the same time, People’s National Party (PNP) president and Opposition Leader Mark Golding said that if his party wins the election, income will be tax-free for Jamaicans who earn $3.5 million or less annually.

Pandohie cautioned that unless leakages are plugged, such policies risk being unsustainable. He pointed to examples in the manufacturing sector in which duty loopholes have created unfair advantages and significant losses in government revenue.

“For example, let’s take [a look at] cooking oil. There’s a duty for bringing in raw material for processing, and there’s a separate duty for bringing in finished goods. There’s a loophole in the system that allows people to just [do] a slight tinkering of what they do, it drops their duty structure and gives them an advantage that has nothing to do with the fact that they’re not processors or anything,” he explained.

“These are loopholes that are leading to a loss in revenue for the Government, resulting in manufacturing being less competitive. If you ask people in the manufacturing space throughout the country, everybody has a story to tell you like that. I think if some emphasis were to be placed on closing those loopholes, it will also help to improve the Government revenue and, therefore, reduce the amount that they need to take from taxpayers,” he stressed.

The Seprod boss added that Jamaica’s tax system is overly complex, with high rates that create incentives for evasion. He noted that the initial increase in the income tax threshold under Finance Minister Dr Nigel Clarke from $1.5 million to $1.7 million proved that lowering taxes can boost compliance and collections.

“People are less likely to be motivated to evade if the burden is less. When the burden is high, there’s a lot of motivation and incentive to evade. I mean, if it’s lower the tax threshold, widen the net, improve the collection and the compliance, and so on more people will be likely to say, ‘Well, it’s not really worth it to go try put in all this effort to not pay the tax if it’s a lower number,’” he told the Sunday Observer.

According to the Tax Administration of Jamaica, more than $18 billion in arrears were collected through its Special Arrears Settlement Programme earlier this year, with business operators relieved of over $6 billion in penalties and interest.

Pandohie also questioned the value Jamaicans receive for their taxes, comparing the island to countries in which high tax payments are matched by efficient public services such as health care, education, and sanitation.

At the heart of the matter, he stressed, is ensuring sustainability and fairness in the tax system.

“Everything they do, everything we all do, all the data, the KPIs [key performance indicators] that we aim for, the end result, the only result that matters at the end of the day is to improve the quality of life for our people. I think there are opportunities in Jamaica. It’s a small country, we’re an island. Everybody can see what’s going on.

“Everybody knows what’s going on, and everybody knows who’s doing what. Until we have a situation where people are prepared to say that we’re going to ensure that these leakages are not happening, a few people will continue to face a very high tax burden. The PAYE is the middle class, they’re suffering with a high tax rate,” said Pandohie.