TAXATION specialist Allison Peart argued last week at the Jamaica Stock Exchange’s (JSE) Investments and Capital Market Conference for the use of taxation as a means of driving economic growth.

According to Peart, who is the partner, tax services and country managing partner, Ernst and Young, reform of the taxation system should take into consideration the policy and administration as separate issues.

She said tax administration reform and tax policies reform, are different things. Tax policies, she argued, are the things that are practised, not what is written down as the rule. She said the reform agenda should recognise this and focus on them as separate issues.

“You either put the policy in so that the administrators know what to do, but to really lump everything together adds to the confusion because it doesn’t matter how beautifully you design your tax policy, if your tax administrators or the people who are actually implementing the tax do something different, what is the policy? Not what you have written,” she said. “So it is key that we get the two together. We need to get good policy working with good tax compliance and then we will have our tax reform.”

Among Peart’s recommendations, were broad-based reforms that included reviewing and harmonising legislation, the implementation of recommended reform measures, better administration of tax incentives and looking outside Jamaica at the competitiveness challenges that have resulted from the inefficient and often ill-conceived tax regime.

Implementation of the tax reform recommendations was also high on the list of items that Peart said were required to engender a better tax system which would facilitate better tax collection. With at least two major tax reforms over the last 25 years, and no real reforms apparent Peart argued the need for better implementation.

“One of the main reasons we can’t seem to get our tax system working properly is that we talk too much. We get a lot of studies done. We spend a lot of money to get great experts in and what do we do? We debate the recommendations for months and then we file in what North Americans call file thirteen or what we call ‘bottom draw’,” Peart said. She pointed to the recommendation being promoted by the Prime Minister that proposes a merger of the payroll system as one that “has been gathering dust for years” and should have been implemented years ago.

“One of the main things we need to do is to get all government ministries to go in their ‘bottom draw’ and pull out the recommendation, take a look at it and say, what really in here should we do and do now,” Peart said.

She argued against the uncertainty that surrounds the implementation of various taxation policies, which she said acts as a disincentive to investments. When taxation measures are announced and later rolled back, many businesses are unsure of how they will be affected by the measures.

“It is very disconcerting to say ‘well I think this will occur, but I’m not sure’. It sends a signal to me that the tax administration is not sitting at the same table with our tax policy people. We need to get the tax policy people at the Ministry of Finance, sitting with the tax administration people who actually go out there and beat us on the head with the Tax Act. Get them together and then determine what will work with the budget. That would prevent a lot of sending it out and pulling it back. Because the fact is, within the tax administration they know what taxes we are willing to pay and what they are not going to collect,” Peart said, while arguing for practicality and fairness in taxation.

Peart also noted that, while waivers and incentives have become an impediment to government, it is the way that these are administered that inhibit growth. She said tax incentives should be specific in nature and tied to things such as job creation and growth in profitability.

“If you are giving an incentive we need to plan and understand what are you giving out and what you are getting in return. If you give an incentive that is just general and you do not have something tied to it, we run what is occurring in Jamaica where you have lots of foreign investments but our GDP doesn’t change,” Peart argued. She said other countries, such as Barbados, ensure that tax credits are tied to either production or employment within the country, unlike in Jamaica where the archaic Hotel Incentives Act give hoteliers 10 to 15 years tax free, with no caveats attached.

“There is no requirement to hire anybody locally, there is no requirement to buy Jamaican, there is no requirement to do anything in Jamaica and, therefore, you find that you give up revenue and you get nothing in return,” Peart argued. “I don’t agree that government should not get involved in tax policy or incentives. I believe that the right tax incentive can drive growth and employment in this country and indeed the Caribbean,” she said.

In Barbados a tax credit is given to companies to the extent that they increase their profits and workforce by at least 10 per cent over a three-year period. According to Peart, this kind of policy will drive a particular kind of behaviour that could lead to growth. “If you hire more and are more efficient I will give you a percentage off what is earned.”

Peart also made the case for a review and harmonisation of taxation policies to become more relevant and to meet the needs of the economy and recommended a five-year review of tax acts regardless of which political party is in power.

“When you have an incentive act that was geared towards one industry and another industry picks it up, confusion reigns,” said Peart, referring to the Freezone Act, which the call centre industry is attempting to now use.

“We need to look at those Acts and determine, why were these incentives put in place. Is it relevant today? We need to make sure that the Caribbean and Jamaica, when we do our tax reform, it is relevant to our needs to what it is that would drive our economy,” she said.

Having an effective taxation system could also facilitate a wider treaty network with countries in Latin America, Peart argued, which could facilitate more investments and trade between Jamaica and these countries.

Jamaica has 13 treaties, compared to 19 in Barbados, Canada’s 91 and the United Kingdom’s 114. She said having more taxation treaties reduce the impediment of double taxation and opens the way for more trade and investments with the countries with which trade would become profitable.

“If we don’t have treaties, we have double taxation. It is a disincentive for people from a Mexican operation to come to Jamaica because they take 33 1/3 per cent income tax here, they don’t take a credit — so they effectively have double tax.”

She said a complete reorganisation of the taxation system to make it more efficient, more accessible and easier to interpret and administer could help open up the path for new growth opportunities within the country.