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Preferential taxes hampering revenue collection, says professor
BY ERICA VIRTUE, Observer writer, virtuee@jamaicaobserver.com
Friday, January 08, 2010
PREFERENTIAL taxes granted to special interest groups have hampered Government's ability to earn huge revenues over time, and their existence will continue to stymie efforts to collect the revenue needed to plug the $21-billion gap in the budget.
Senior lecturer in the Department of Economics of the University of the West Indies, Mona Campus, Damien King, PhD, believes that government will not collect much of the revenue it projects, arguing instead that the Jamaica Labour Party (JLP) administration stood a better chance of collecting desired revenues if taxes were uniform and universal.
"We need to get out of heads this notion that those things we like, desire, value, don't have to pay their fair share of taxes. If you are waiting to find a man up in the hills of St Mary, who does not manufacture, is not in agriculture, does not consume food and is sitting on a vast pile of wealth, then go and tax him for $21 billion. But that man does not exist. So if the government is to raise $21 billion and start to close the deficit that is continuing to run the country into the ground, and continuing the fiscal deficits that we have had, almost unchanged since independence, then everybody has to pay the tax...," the economist argued.
King said the tax code that currently exists has no fewer than 220,000 different exemptions, according to one individual who worked on the Matalon Committee Report of 2004, which proposed tax overhaul.
It was his view, that individuals could get rich by exploiting the exemptions, and he made it clear that the amount of taxes that are forgone by way of exemptions, exceeded the sums collected at borders.
Exemptions, he argued, were legal avoidance and created opportunities for evaders.
"We need to get out of the business of trying to be clever with the tax code...," he said.
King described as a bad move, the introduction of the graduated taxes on the on income in excess of $10 million, arguing that there were only 578 individuals 'on roll' from whom such taxes could be collected.
He was referring to the revised tax package announced by Government late December, which included a hike in the personal income tax rate from 25 per cent to 27.5 per cent on all income above the threshold for persons earning in excess of $5 million and 35 per cent for persons earning $10 million or more.
But King made it clear that it should not be mistaken that there were only 578 individuals in Jamaica who are earning more than $10 million in salary.
Also, he expects the 578 to decline significantly over the next few years and further reduce the revenues Government was hoping to achieve.
"In other words, in three years it is going to yield no revenue," he argued, suggesting that the interest rate was enough to make them not want to pay.
BY ERICA VIRTUE, Observer writer, virtuee@jamaicaobserver.com
Friday, January 08, 2010
PREFERENTIAL taxes granted to special interest groups have hampered Government's ability to earn huge revenues over time, and their existence will continue to stymie efforts to collect the revenue needed to plug the $21-billion gap in the budget.
Senior lecturer in the Department of Economics of the University of the West Indies, Mona Campus, Damien King, PhD, believes that government will not collect much of the revenue it projects, arguing instead that the Jamaica Labour Party (JLP) administration stood a better chance of collecting desired revenues if taxes were uniform and universal.
"We need to get out of heads this notion that those things we like, desire, value, don't have to pay their fair share of taxes. If you are waiting to find a man up in the hills of St Mary, who does not manufacture, is not in agriculture, does not consume food and is sitting on a vast pile of wealth, then go and tax him for $21 billion. But that man does not exist. So if the government is to raise $21 billion and start to close the deficit that is continuing to run the country into the ground, and continuing the fiscal deficits that we have had, almost unchanged since independence, then everybody has to pay the tax...," the economist argued.
King said the tax code that currently exists has no fewer than 220,000 different exemptions, according to one individual who worked on the Matalon Committee Report of 2004, which proposed tax overhaul.
It was his view, that individuals could get rich by exploiting the exemptions, and he made it clear that the amount of taxes that are forgone by way of exemptions, exceeded the sums collected at borders.
Exemptions, he argued, were legal avoidance and created opportunities for evaders.
"We need to get out of the business of trying to be clever with the tax code...," he said.
King described as a bad move, the introduction of the graduated taxes on the on income in excess of $10 million, arguing that there were only 578 individuals 'on roll' from whom such taxes could be collected.
He was referring to the revised tax package announced by Government late December, which included a hike in the personal income tax rate from 25 per cent to 27.5 per cent on all income above the threshold for persons earning in excess of $5 million and 35 per cent for persons earning $10 million or more.
But King made it clear that it should not be mistaken that there were only 578 individuals in Jamaica who are earning more than $10 million in salary.
Also, he expects the 578 to decline significantly over the next few years and further reduce the revenues Government was hoping to achieve.
"In other words, in three years it is going to yield no revenue," he argued, suggesting that the interest rate was enough to make them not want to pay.