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published: Monday | January 28, 2008
We assume that Prime Minister Bruce Golding's administration is committed to equalising the rate of personal and corporate income tax, which was one of the Jamaica Labour Party's (JLP) campaign planks for last September's general election.
Timing, however, appears to be problematic for the Government. For while Finance Minister Audley Shaw last week told financial analysts that the Government is "actively considering" lowering the corporate tax rate from 33.3 per cent to 25 per cent, he couldn't say when it would be done.
Many people in corporate Jamaica had hoped that the process would have begun in the Budget and that in relatively short order equalisation would have been achieved, in accordance with the recommendations of the Matalon Committee on Tax Reform. Even if the JLP might not have been specific in the promise, it was certainly implied.
Fiscal realities, it seems, are demanding that the new Government be far more circumspect in its approach, requiring that it take a hard, cold look at things before too firmly committing itself. Last week, for instance, Prime Minister Golding projected that 2007/2008 will end with a fiscal deficit at 5.5 per cent of GDP, one percentage point higher than the original target. The impact of storms, inflation and high oil prices on the economy caused the recalibration. The administration worries that a global recession, triggered by America's mortgage crisis, could worsen the situation for Jamaica.
In the circumstance, Mr Shaw and his co-ministers at Finance may be fearful about giving up corporate tax revenue, which running seven per cent ahead of projections up to November - $54.3 billion between April and November against the expected $50.6 billion - is a sector that notoriously underperforms. If that trend holds good, the Government should be able to achieve the $89 billion in corporate income tax that was set by the previous administration. Or, it should be close.
Our view is that in the current circumstance, a taxation stimulus would be good for the Jamaican economy to help provide a buffer against the expected US recession to ensure growth.
On the face of it, Mr Shaw would perhaps have to give up $7 billion in corporate income tax if he equalised the tax rates on individuals and companies. But he stands, in the short order, to gain far more.
Lower corporate income tax would free money for companies to invest, thereby creating jobs and helping to spur economic growth. The upshot: a spiral in the personal and corporate tax take. Moreover, a lower tax rate will lessen the reasons for companies to dodge their taxes, thus increasing compliance. In other words, it's a win-win all round.
But giving up this tax revenue, and perhaps increasing the personal income tax threshold to the $275,000 proposed by Matalon, would not be without hard decisions for the Government. Mr Golding, as he has already signalled, will have to be frank that some of his campaign promises will have to be postponed.
There is another possibility for the Government if it does not want to go all the way with a corporate tax reduction. The National Housing Trust is accumulating cash much faster than it can absorb and utilise. It would make sense to place a moratorium on the three per cent employers' contribution to the fund so that firms can have the cash to invest.
We assume that Prime Minister Bruce Golding's administration is committed to equalising the rate of personal and corporate income tax, which was one of the Jamaica Labour Party's (JLP) campaign planks for last September's general election.
Timing, however, appears to be problematic for the Government. For while Finance Minister Audley Shaw last week told financial analysts that the Government is "actively considering" lowering the corporate tax rate from 33.3 per cent to 25 per cent, he couldn't say when it would be done.
Many people in corporate Jamaica had hoped that the process would have begun in the Budget and that in relatively short order equalisation would have been achieved, in accordance with the recommendations of the Matalon Committee on Tax Reform. Even if the JLP might not have been specific in the promise, it was certainly implied.
Fiscal realities, it seems, are demanding that the new Government be far more circumspect in its approach, requiring that it take a hard, cold look at things before too firmly committing itself. Last week, for instance, Prime Minister Golding projected that 2007/2008 will end with a fiscal deficit at 5.5 per cent of GDP, one percentage point higher than the original target. The impact of storms, inflation and high oil prices on the economy caused the recalibration. The administration worries that a global recession, triggered by America's mortgage crisis, could worsen the situation for Jamaica.
In the circumstance, Mr Shaw and his co-ministers at Finance may be fearful about giving up corporate tax revenue, which running seven per cent ahead of projections up to November - $54.3 billion between April and November against the expected $50.6 billion - is a sector that notoriously underperforms. If that trend holds good, the Government should be able to achieve the $89 billion in corporate income tax that was set by the previous administration. Or, it should be close.
Our view is that in the current circumstance, a taxation stimulus would be good for the Jamaican economy to help provide a buffer against the expected US recession to ensure growth.
On the face of it, Mr Shaw would perhaps have to give up $7 billion in corporate income tax if he equalised the tax rates on individuals and companies. But he stands, in the short order, to gain far more.
Lower corporate income tax would free money for companies to invest, thereby creating jobs and helping to spur economic growth. The upshot: a spiral in the personal and corporate tax take. Moreover, a lower tax rate will lessen the reasons for companies to dodge their taxes, thus increasing compliance. In other words, it's a win-win all round.
But giving up this tax revenue, and perhaps increasing the personal income tax threshold to the $275,000 proposed by Matalon, would not be without hard decisions for the Government. Mr Golding, as he has already signalled, will have to be frank that some of his campaign promises will have to be postponed.
There is another possibility for the Government if it does not want to go all the way with a corporate tax reduction. The National Housing Trust is accumulating cash much faster than it can absorb and utilise. It would make sense to place a moratorium on the three per cent employers' contribution to the fund so that firms can have the cash to invest.
Ongle, dem did seh, ediat Omar raid dem deh funds?
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