Implementing the Jamaica Tax Reform

It is important to ensure that in the process of tax reform that any changes to be made should be phased in so as not to prejudice those who have had to pay higher rates as well as to give time for the business process to adjust for the new rates.

According to section 3.5 of the green paper there are several proposed changes to how tax measures are to be implemented.  The first aim is that any changes to tax structures, including GCT, will be structured in three year intervals. This recommendation recognises that change can’t always take place overnight and that if change were immediate new entrants in the market may have a decided advantage over old players.  For example a new importer would be able to bring in inventory at decidedly lower rates while the older companies would still have stock costed at a much higher price.

Another recommendation is that changes to the income tax system would be geared towards becoming effective on January 1 each calendar year.  This of course will eliminate the need to rush to have the payroll system upgraded.  It also avoids the need to calculate the proportion of the change to be implemented.  The change whereby higher rates of tax were to be applied to persons earning more than $5 million was a particular hardship as it applied to two parts of two different calendar years.

The third recommendation is that there would be a pre-implementation period after the budget debate ends.  This would enable the public to be sensitised to changes and to provide time to complete the analytical work required to be sure of the potential revenue implications.  In my opinion however, it would be best to have done all of this analysis before hand and to have had discussions with the different interest groups before announcing any tax changes.  The pre implementation period would then be necessary only to sensitise the public.

The last recommendation is for performance monitoring of the tax changes.  It is possible that in analysing the situation mistakes could have been made or something could have been missed.  A subsequent review of the effects of the new tax measures implemented would be useful in order to assess whether they are working properly or not.  For example, lowering tax rates will not be effective if it does not also improve tax compliance.  The only way to assess this would be to look at the situation post implementation and to compare it with the prior period to see if compliance improves.

The important thing to remember is that we do not live in a static environment.  As the world changes so must the way we interact with it change and one of the areas that must continually be reviewed is the tax revenue measures.