THE Government by next month will have to outline an action plan to scale back and reform the tax incentive system estimated to negatively impact its revenues by as much as $25 billion should it hope to meet a key International Monetary Fund (IMF) structural reform target.

In its staff report for the first review of the stand-by arrangement released this week, the IMF said the Jamaican government “remains committed to outlining an action plan by September 2010, as envisaged in the January 2010 memorandum of economic and financial policies (MEFP)”.

“A multiplicity of statutory and discretionary exemptions are complicating tax administration and undermining compliance,” said the document. “While the magnitude of discretionary waivers is not accurately known, some studies suggest an impact on revenue collection of not less than J$20-25 billion (about two per cent of GDP).

“The tax incentive reform will enhance the transparency and cost management of all statutory and discretionary tax waivers, exemptions and concessions with the specific aim of reducing the value of these tax expenditures over time.”

Under the Stand-By Agreement with the IMF, the Government committed to “not expand the scope of tax incentives until the new tax waiver policy is in place” and “immediately carry out an audit of waivers to ascertain whether they were granted following proper procedures and, in the case of conditional waivers, whether they were used for the purpose for which they were granted” as a structural benchmark in the short run.

The audit is to be completed by the end of 2010.

Earlier this month, Prime Minister Bruce Golding announced that Government suspended the issuing of waivers and incentives, while addressing the closing ceremony of the 58th annual Denbigh Agricultural and Industrial Show in Clarendon.

“…Cabinet took a decision that as of August 1 there will be a freeze on all new waivers and incentives, pending the outcome of the study,” Golding said.

That study, according to the prime minister, has been commissioned already to determine which incentives will be retained and those which will not.

“It will tell us where to grant waivers and where not to grant waivers,” Golding said, adding that the study should be completed by year-end.