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Tax Reality Check

Tax Reality Check

(Taken from the Jamaica Gleaner, April 2, 2017)

Did they do a tax-incidence study? The Ministry of Finance has the ability to do such analyses. As former minister of finance Peter Phillips asked during the Budget Debate, was one done to evaluate the impact of the current tax measures? If yes, what did it show in terms of the impact of the increases in the fuel tax, GCT on energy, and property taxes? If none was done, somebody has to be held accountable because the majority of Jamaicans are feeling the brunt.

In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare across different groups. Importantly, the burden from taxation is not just about the quantity of tax paid (directly or indirectly), but the magnitude of the lost purchasing power, i.e., what people will have left in their pockets.

Let’s get a better sense of who we’re talking about in terms of impact from the raft of tax measures.

While working with the Private Sector Working Group (PSWG) in 2012 on a comprehensive tax-reform proposal, there was a clear understanding that the persons who would be impacted by changes in indirect taxes and rates were the vulnerable and working poor. The PSOJ, in 2011, estimated this number at 1.1 million Jamaicans. As at June 2016, the PATH serves just over 375,000 Jamaicans. That means that approximately 725,000 Jamaicans across the country see no benefit at all in this Budget and will be impacted by increases on already small or inconsistent income. To what extent? Mr Minister, please show the numbers.

PATH REALITY

For persons on PATH, it is positive that the current Government continues to increase the amount allocated to the welfare programme. Having worked on the ground in various communities across the country, however, even with this coming increase, the reality is extremely difficult to impossible.

The School Feeding Programme is $80 per day ($40 for breakfast and $40 for lunch). Under the new Budget, that is to move from three days to five days. But what can $40 buy in terms of nutrition? Most people don’t drink bagged juice because they want to be unhealthy. They drink it because it’s cheap and keeps the children awake, giving some energy to cover the hunger.

General PATH payments amount to $1,400 every two months for boys and $1,200 every two months for girls. That’s $20-$24 per day! What is that when transport costs to go to school are $60 round trip per day in Kingston and $200 round trip in rural Jamaica?

Imagine if Jamaica took the living conditions for these 1.1 million Jamaicans seriously, and instead of adding taxes across the board, the Government designed a programme that targeted those who earn above $5m to fund a proper social-support system?

A proper tax-incidence analysis would have yielded the true net impact on these groups, enabling Government then to determine what other mitigating measures they could put in place and how to fund them.

REAL DEAL WITH PROPERTY TAXES

There were 831,855 properties on the tax roll as of January 31, 2017. It’s good that 24 per cent of these persons will pay less or see no increase with the new property tax regime, but what about the other 76 per cent of people?

Reports from various parts of the country show the following:

– A property in Lucea, Hanover, valued at $1.8m has moved from $6,250 to $12,850 in property taxes (that’s a 106 per cent increase). The lady who lives there is hard working but has inconsistent income. She does not qualify for PATH.

– A professional living in the Golden Triangle in St Andrew, who will see an increase in his take-home salary by $8,000 per month with the tax break, has his property tax moved from $134,000 to $713,000 (that’s a 432 per cent increase). Between the increase in property tax, fuel tax, and tax on group health insurance, any benefit he would have felt is completely wiped out – even if he uses the part-payment approach put in by the Government.

DIFFERENT POLICY APPROACH

As someone who studied economics, it is positive that the Budget is fiscally responsible. That is, the revenue and expense numbers essentially balance out and will not add to Jamaica’s stock of debt, which has been a chokehold on our growth.

However, as someone also trained in political economy, the impact of the range of taxes on the middle class, working class, pensioners, non-income persons is mind-boggling. And all this was done to essentially uphold a commitment of tax relief for earnings up to $1.5m. But there is no real relief even for those 90,000 Jamaicans – those persons either own property or rent. Those who rent will surely see an increase as property owners will pass it on.

In the meantime, the Government could have chosen a different route for policy implementation for these property taxes if they were not looking for $4 billion to make up the shortfall brought on by the tax relief.

While the new valuations were completed in 2013, the Government could have chosen to avoid the extreme increases either by further lowering the rates or by capping any owners increases at 15 per cent above where it was in 2016-17. This could then allow persons time to rearrange expenditure where possible over the next year, or so, and plan for the increases that would come over time.

A tax-incidence survey and a philosophy that has people at the centre would inform a different policy approach. Such a survey would also inform a better growth-inducement strategy, where the ordinary Jamaican would actually have money to spend in the economy.