A tax expert is calling for Government to accelerate the implementation of a single deduction from payslips, saying it would boost compliance and could result in tax rebates.
Denzil Whyte, managing director and founder of Signature Tax Advisory Limited, outlined how the proposal could work, in an interview with the Jamaica Observer.
Currently, there are five main taxes and statutory deductions which employees pay. These are the pay as you earn (PAYE) income tax, national insurance (NIS), education tax, HEART contributions and National Housing Trust (NHT) contributions.
"You don't need to have so many different taxes and deductions," Whyte told the Jamaica Observer.
Whyte also had issues with the different bases on which the taxes are calculated, calling it "unnecessary complications".
"HEART is calculated by reference to the employer's total pay bill. If the employer's total payroll cost doesn't pass a certain amount, you don't pay any HEART deductions. NIS doesn't refer to the employer's pay bill, but rather to each employee's weekly salary. Then there is NHT, which is the simplest, because it's clearly just on the gross. Then you have education tax that is on statutory income, which means it's gonna take into consideration a reduction for NIS and a reduction for approved retirement scheme or superannuation contributions. And then you have PAYE, which in addition to the things that the education tax took into consideration, PAYE also takes out tax-free threshold," he told the Caribbean Business Report.
"And as if the number of bases on which the deductions are calculated and the number of taxes were not enough, it's even more complicated when you're taking into consideration the impact of retirement age. So when you reach 65, you're gonna stop paying NHT. Then when you reach 70, you're gonna stop paying NIS. When you become a pensioner, you get more exemptions in relation to income tax. When you become 55, there's implication on your income tax and when you become 65, there's further implications. If all of those different 'retirement ages' were consolidated into one, it would make it so much simpler. The different entities, the different organisations have different reference points in terms of when they start taxing you and when they stop taxing you."
Whyte said the number of taxes and how they are calculated is negatively impacting compliance levels. He added that because of the complications, people who try to be compliant still make errors which causes friction with Tax Administration Jamaica (TAJ), and cost on the administrator's side to recover the right amount, raise assessments, and so on.
He also took on the number of returns that are required each year as "unnecessary", saying there is no apparent reason why there is a need for an annual returns to be made in addition to the monthly returns because it's the same information.
"So it's like a duplication and waste. All of these complications really give the person who is trying to comply a hard time because they have so many different pressure points to be focusing on."
He recalled an experience in which an auditor from TAJ could not calculate the taxes correctly because of the complications.
"I had to be sending them legislation and pointing out to them, this is how it's supposed to be done. They disagree, I had to go above them and submit the points to somebody higher than them, and that person had to tell the auditor that how I was doing it was the correct way. So it's hard for the administrators as well as the taxpayers.
"I'll give you another situation. If you need a compliance certificate, they're asking you at times to get sign-off clearance letters from all the different entities. So you have to get NIS clearance, NHT clearance, TAJ clearance, and HEART clearance. It is just far too complicated," he noted.
Besides that, Whyte points out that there are different auditors from the various recipient agencies for each deduction.
"What I'm proposing is to actually simplify all of that," he said.
He is calling for the scrapping of the annual returns that companies file in favour of the monthly returns and a consolidation of the tax base.
"It's not necessary to have five taxes with five different bases. Allow all of those taxes to be calculated under gross. There's no reason why you have NHT being calculated on the gross and Education Tax being calculated on something else, and PAYE being calculated on something else, and so on."
"I'm also suggesting that they consolidate all five taxes and statutory contributions into one and they can always call that PAYE.
Whyte proposes that the Government require a 7.5 per cent deduction from the gross earnings of people earning under $1.5 million annually. If the salary is between $1.5 million and up to $6 million, the proposal is to take a single tax amounting to 31.5 per cent from their salaries. Those earning over $6 million would pay 33 1/3.
"It is just adding all the deductions together and would result in people paying the same level of taxes they pay now, but only that the calculations would be simpler," said Whyte.
He said the Government should have the headache to distribute the monies to the various different funds rather than burdening taxpayers to do so with proper legislation in place to determine how much of each employee's returns go to each segment.
"It will make it a lot easier for persons to comply, and if it's easier for persons to comply, then it'll mean increased compliance. It could also result in people getting tax refunds at the end of each year as happens in the US. That would incentivise people to be compliant and it would mean the effort to increase compliance in one area would run right across the board," he said.
"I know a lot of people who want to comply and don't because it is so complicated. Now, how this new system will help is that it'll give so much of an incentive to employees to supply the information to the tax authority because if they file, they get a refund."