EDITORIAL: JA gov’t needs to rewind to meet income tax promise

Minister of Finance Audley Shaw

It looks like one major campaign promise made by the new Jamaican government may already in jeopardy. The currently ruling Jamaica Labor Party (JLP) swept into office largely on their popularly received promise to eliminate the income tax for those earning under J$1.5 million (US$12,327) annually. The promise was much welcomed by the majority of voters – as well as those closely watching the elections among the Diaspora. For Jamaicans living abroad with family back home, a tax break would have eased the burden of sending frequent remittances to their relatives in Jamaica. For Jamaican retirees living abroad, a tax break would have also alleviated some of the tax pressures accrued on their pensions.

The new government however, has encountered a stumbling block, as Minister of Finance Audley Shaw recently announced that the main source of revenue – a gas tax – that the government was anticipating to use to fill the budgetary void resulting from the planned tax relief, had already been spent by the outgoing government. Although the prime minister subsequently announced the promised tax relief would be honored, it seems the government is in a predicament to implement this promised policy.

This predicament isn’t surprising. Several analysts and economists questioned the practicality of this tax measure, estimated to cost the government J$11.5 billion annually. For one, under the current funding agreement between Jamaica and the International Monetary Fund (IMF), the Fund is insistent the government implement tax reforms aimed at increasing the nation’s income-tax revenues. The proposed tax break would do the exact opposite, depleting revenue. Moreover, as the government faces with financial challenges to meet public sector expenses, taxes would have to be applied to other sources to make the promised tax break feasible. The question now is where to turn for these extra funds?

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In response to the announced dilemma, there have been some interesting suggestions offered for sourcing alternative revenue to fund the tax relief measure. One suggestion is for the government to use 50 percent of Jamaica’s Tourism Enhancement Fund (TEF), created in 2001 to promote growth and development in the tourism sector, which is currently earning some US$50 million annually from a US$20 head tax on visitors flying into Jamaica. However, one questions the feasibility of utilizing a significant percentage of this fund outside the growth and development of Jamaica’s tourism industry, particularly when fierce competition from Cuba’s booming tourism sector is brewing.

Also, the TEF could benefit the Diaspora by developing Jamaica’s secondary tourism sector, especially smaller hotels on the island’s north, northeast and southern coast. This would create an attractive, affordable product for visitors from the Diaspora who cannot afford the island’s more expensive tourism products, but who yearns to make Jamaica their vacation destination.

Another suggestion is for the government to implement a small tax on financial remittances from the Diaspora. The island’s gross remittances, according to a recent report from the Bank of Jamaica (BOJ), were calculated at US$2.2 billion  in 2015 – which marked a fourth consecutive year of increased remittances. Of that amount, net remittances totaled US$1.99 billion, or US$63.5 million more than a year earlier. However, rather than using this tax to fill a void created by an income tax break, it would possibly be more productive to use this revenue to create jobs for the thousands of unemployed Jamaicans.

While some sympathize with the government as it copes with this predicament, others are wondering if the JLP hadn’t thoroughly analyzed the pragmatics of implementing this measure. The government must be cautioned that voters take this promise seriously, and expect it to be kept. An extended delay in implementing the measure may make the young government risk losing its credibility at home and among the Diaspora.

 

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