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Study: JA's high tax regime partly blamed for low standard of living
JAMAICA'S ranking among the highest taxed countries across emerging economies and the wealthiest G8 countries could be one of the reasons for the country's low standard of living and economic competitiveness.
In a study, researchers from the global accounting and consultancy network UHY found that the disparity between 19 high-taxed and low-taxed countries across its international network accounted for differences such as standard of living and economic competitiveness.
According to the UHY tax professionals, many of the wealthiest countries, including Dubai, the United States, Canada, Russia and Japan, use tax policy to attract and retain high-earning taxpayers as an important engine of economic growth and source of revenue. The data also indicates that the countries, like Jamaica with the highest taxed workers, are among the poorest, with lower standards of living, social security and economic advancement. It also showed that in these countries, the highest income earners, that is those persons who earn US$200,000 ($17 million) annually, are taxed more than twice the lowest earners, those who earn US$25,000 ($2.12 million) annually.
Dawkins Brown, managing partner of the Jamaica-based UHY Dawgen Chartered Accountants has extrapolated data from the research conducted by UHY on the lowest and highest income earners and found that Jamaican workers in each case are among the highest taxed.
According to the analysis low income earners in Jamaica take home just 75.73 per cent of US$25,000 annual income. That is, just $1.6 million of the $2.12 million. This places the low income earner in Jamaica among the five highest taxed in the world, behind Germany, at number one, where the low income German worker takes home just 72.6 per cent of his annual salary.
The tax effect is even more stark when the analysis is done on the salary of the high income earner. In Jamaica, those who earn US$200,000 or $17 million, they take home just 65 per cent of their salaries each year or just over $11 million. "This shows that in Jamaica the higher your earnings the more you are penalised," Brown noted.
The tax disparity places Jamaica among the ten most taxed of the 19 countries. Jamaica does not compare favourably with the USA, where high income workers take home 69.9 per cent or US$139,709 ($11.9 million) of their salaries, India where workers take home 70.6 per cent or US$141,163 ($12 million) and Russia where the workers take home 87 per cent of their salary or US$174,000 ($14.8 million). In each of the instances, Dubai is the country with the lowest tax burden, with workers within the low and high income groups taking home 100 per cent of their salaries.
Brown said this tax disparity is one of the factors driving the highly skilled and educated out of Jamaica to places like the United States and Canada which although it has a similar tax structure for high income earners, also has significant social benefits.
"This is important for Jamaica because for persons who are earning $17 million it would not be difficult for them to be mobile internationally," Brown noted. "This person is a person who has invested a lot in knowledge and the return on that investment is suppressed by taxes. Direct taxation does not really encourage professional groups to continue to contribute to the economy," Brown added. "When you look at what is happening to them you can understand why we have the brain drain."
The research highlights the need for countries like Jamaica to work harder to become more attractive to the highly skilled, educated and compensated, an increasingly mobile group who factor in tax burden when deciding where to live and work. Brown said the 'brain drain' is also affecting Jamaica not just in income generation but in other important factors that ultimately contribute to economic growth. "These are leaders who have the knowledge so you can have a transfer of knowledge to the lower groups," Brown noted. "There is an increased percentage of professionals leaving Jamaica and if you look at it from a brain drain standpoint these are who we need to use to drive development," he said. Brown pointed to the skilled worker programme offered by Canada which allows these persons to migrate to the country as skilled professionals and said Jamaica could stop the flow if it addresses its tax policy.
"Just like how you give businesses tax breaks you must give individuals tax breaks," Brown said.
"If you look at countries that are doing relatively well, look at Dubai, what you earn you keep and you spend," he said.
In some highly taxed countries the effect of the taxes is offset by significant social benefits such as reduction in interest on home mortgages as is the case in the Netherlands and comprehensive social coverage such as complete health insurance as in the case of Germany. Brown argues that Jamaica's tax benefits could be tied to the Vision 2030 national development plan, which could further push economic growth and competitiveness. "I cannot see why we do not have tax as a policy to encourage persons to own their homes," Brown said.
He argued that the government should have a tax benefit for persons who are paying a mortgage so that the benefit could at least cushion the payments and encourage persons to own homes, instead of renting. Brown noted that in many cases, the rental actually costs more than a mortgage payment, but persons cannot afford to make the down payment in the first instance because of the low disposable incomes after tax.
Additionally, Brown also advocated for a tax benefit for married couples; a move he said would encourage better, more stable family life. "If you want good family life you can also use tax policy. We should use tax policy to encourage families to stay together."
Brown said the tax authorities should carefully examine how the tax policy that is being proposed is implemented. He said Jamaica should use the countries that are most attractive to the Jamaican worker as a benchmark. "Any tax that is higher than the tax that the US worker pays is not acceptable," he said. Even in the case of the lowest paid, the US still compares more favourably than Jamaica. In the US, workers who earn US$25,000 or $2.12 million, take home 90.6 per cent of their salaries or US$22,660 ($1.92 million).
The UHY consultant said one tax measure that could ease the burden on the greatest number of pay as you earn (PAYE) workers including both the low income and high income earners is increasing the tax threshold from the current $441,146 to $1.5 million. "So anyone earning below $1.5 million there is no PAYE and you push the GCT from 17.5 per cent to 22 per cent," Brown noted. He said this would be easier to police, it would broaden the base of people who have more money in hand who will take the decision to consume more and in effect pay more taxes. "It would allow the government to also reduce the number of persons they need to collect taxes," he said.
According to Brown the current proposal to reduce General Consumption Tax (GCT) and broaden the base of items to be taxed would be problematic in a number of ways. "I don't support the idea that the sales tax should be reduced from 17.5 per cent to 15 per cent or 12 per cent. You are going to affect the lower earning persons and you are going to widen the tax base and affect some of those zero rated items," he noted. He added that lowering the GCT would also be a "nightmare in terms of reconciliation" for companies which would have acquired stock at 17.5 per cent but would be forced to sell those items at 15 or 12 per cent. The difference would mean that the government would actually not collect any revenue in the short term because there would be a credit on the accounts of these businesses.
"On the other hand, there are benefits to the sales tax. If you consume you pay. I think it is a more equitable base and a sales tax is easier to manage administrative wise," Brown said. "If you talk about improving compliance then I don't think you can mix compliance with changing the basis of how you collect taxes. It's a matter of administration."
Read more: http://www.jamaicaobserver.com/busin...#ixzz1PM4PJZnD
In a study, researchers from the global accounting and consultancy network UHY found that the disparity between 19 high-taxed and low-taxed countries across its international network accounted for differences such as standard of living and economic competitiveness.
According to the UHY tax professionals, many of the wealthiest countries, including Dubai, the United States, Canada, Russia and Japan, use tax policy to attract and retain high-earning taxpayers as an important engine of economic growth and source of revenue. The data also indicates that the countries, like Jamaica with the highest taxed workers, are among the poorest, with lower standards of living, social security and economic advancement. It also showed that in these countries, the highest income earners, that is those persons who earn US$200,000 ($17 million) annually, are taxed more than twice the lowest earners, those who earn US$25,000 ($2.12 million) annually.
Dawkins Brown, managing partner of the Jamaica-based UHY Dawgen Chartered Accountants has extrapolated data from the research conducted by UHY on the lowest and highest income earners and found that Jamaican workers in each case are among the highest taxed.
According to the analysis low income earners in Jamaica take home just 75.73 per cent of US$25,000 annual income. That is, just $1.6 million of the $2.12 million. This places the low income earner in Jamaica among the five highest taxed in the world, behind Germany, at number one, where the low income German worker takes home just 72.6 per cent of his annual salary.
The tax effect is even more stark when the analysis is done on the salary of the high income earner. In Jamaica, those who earn US$200,000 or $17 million, they take home just 65 per cent of their salaries each year or just over $11 million. "This shows that in Jamaica the higher your earnings the more you are penalised," Brown noted.
The tax disparity places Jamaica among the ten most taxed of the 19 countries. Jamaica does not compare favourably with the USA, where high income workers take home 69.9 per cent or US$139,709 ($11.9 million) of their salaries, India where workers take home 70.6 per cent or US$141,163 ($12 million) and Russia where the workers take home 87 per cent of their salary or US$174,000 ($14.8 million). In each of the instances, Dubai is the country with the lowest tax burden, with workers within the low and high income groups taking home 100 per cent of their salaries.
Brown said this tax disparity is one of the factors driving the highly skilled and educated out of Jamaica to places like the United States and Canada which although it has a similar tax structure for high income earners, also has significant social benefits.
"This is important for Jamaica because for persons who are earning $17 million it would not be difficult for them to be mobile internationally," Brown noted. "This person is a person who has invested a lot in knowledge and the return on that investment is suppressed by taxes. Direct taxation does not really encourage professional groups to continue to contribute to the economy," Brown added. "When you look at what is happening to them you can understand why we have the brain drain."
The research highlights the need for countries like Jamaica to work harder to become more attractive to the highly skilled, educated and compensated, an increasingly mobile group who factor in tax burden when deciding where to live and work. Brown said the 'brain drain' is also affecting Jamaica not just in income generation but in other important factors that ultimately contribute to economic growth. "These are leaders who have the knowledge so you can have a transfer of knowledge to the lower groups," Brown noted. "There is an increased percentage of professionals leaving Jamaica and if you look at it from a brain drain standpoint these are who we need to use to drive development," he said. Brown pointed to the skilled worker programme offered by Canada which allows these persons to migrate to the country as skilled professionals and said Jamaica could stop the flow if it addresses its tax policy.
"Just like how you give businesses tax breaks you must give individuals tax breaks," Brown said.
"If you look at countries that are doing relatively well, look at Dubai, what you earn you keep and you spend," he said.
In some highly taxed countries the effect of the taxes is offset by significant social benefits such as reduction in interest on home mortgages as is the case in the Netherlands and comprehensive social coverage such as complete health insurance as in the case of Germany. Brown argues that Jamaica's tax benefits could be tied to the Vision 2030 national development plan, which could further push economic growth and competitiveness. "I cannot see why we do not have tax as a policy to encourage persons to own their homes," Brown said.
He argued that the government should have a tax benefit for persons who are paying a mortgage so that the benefit could at least cushion the payments and encourage persons to own homes, instead of renting. Brown noted that in many cases, the rental actually costs more than a mortgage payment, but persons cannot afford to make the down payment in the first instance because of the low disposable incomes after tax.
Additionally, Brown also advocated for a tax benefit for married couples; a move he said would encourage better, more stable family life. "If you want good family life you can also use tax policy. We should use tax policy to encourage families to stay together."
Brown said the tax authorities should carefully examine how the tax policy that is being proposed is implemented. He said Jamaica should use the countries that are most attractive to the Jamaican worker as a benchmark. "Any tax that is higher than the tax that the US worker pays is not acceptable," he said. Even in the case of the lowest paid, the US still compares more favourably than Jamaica. In the US, workers who earn US$25,000 or $2.12 million, take home 90.6 per cent of their salaries or US$22,660 ($1.92 million).
The UHY consultant said one tax measure that could ease the burden on the greatest number of pay as you earn (PAYE) workers including both the low income and high income earners is increasing the tax threshold from the current $441,146 to $1.5 million. "So anyone earning below $1.5 million there is no PAYE and you push the GCT from 17.5 per cent to 22 per cent," Brown noted. He said this would be easier to police, it would broaden the base of people who have more money in hand who will take the decision to consume more and in effect pay more taxes. "It would allow the government to also reduce the number of persons they need to collect taxes," he said.
According to Brown the current proposal to reduce General Consumption Tax (GCT) and broaden the base of items to be taxed would be problematic in a number of ways. "I don't support the idea that the sales tax should be reduced from 17.5 per cent to 15 per cent or 12 per cent. You are going to affect the lower earning persons and you are going to widen the tax base and affect some of those zero rated items," he noted. He added that lowering the GCT would also be a "nightmare in terms of reconciliation" for companies which would have acquired stock at 17.5 per cent but would be forced to sell those items at 15 or 12 per cent. The difference would mean that the government would actually not collect any revenue in the short term because there would be a credit on the accounts of these businesses.
"On the other hand, there are benefits to the sales tax. If you consume you pay. I think it is a more equitable base and a sales tax is easier to manage administrative wise," Brown said. "If you talk about improving compliance then I don't think you can mix compliance with changing the basis of how you collect taxes. It's a matter of administration."
Read more: http://www.jamaicaobserver.com/busin...#ixzz1PM4PJZnD
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