Taxation – Restructuring Part 3

By Carl Wilson

In this part of our series we look at the area of tax reform; in order to stimulate the economy, changes will have to be made to the tax system.

Currently the flat tax of 25% for PAYE and 33.33% for companies places too much of the tax burden on lower income individuals/companies.  In almost every country in the world a progressive tax system is in place i.e. this is a system whereby the tax rate increases as the income level increases. There is a lot of debate about whether this is a good system or not but in Jamaica we see where companies/individuals take large incomes for themselves at the expense of everyone else.

Companies today do not hire staff so that they can make super profits and work their existing staff to death in the process.  We need to consider reestablishing tax deductions for individuals for things such as insurance – all types, school books and fees, mortgage interest, etc. We want to encourage people to do those things that will help them in the long run and remove the need for the Government to provide assistance in times of emergencies.

Tax incentives need to be changed, too much of the incentives go to the tourism sector especially the large hotels.  We need to redirect our incentives to other areas such as agriculture, manufacturing, alternative energy and others.  One overlooked area is the tax incentive for relocating businesses.  There are too many businesses in Kingston and not enough in other areas.  This causes major loss of productive time due to persons having to commute to Kingston.  In addition more persons migrate to the urban area putting stress on the ability of the city to deal with the large number of residents.

Incentives should be provided to encourage companies to establish businesses in other parts of the country with a view to promoting development of those areas.  One obvious example is Portmore, home to 400,000 people, where there are insufficient schools and businesses and there is no hospital.

Due to the high level of non-compliance with respect to payment of taxes a move towards more consumption oriented taxes such as GCT and away from the direct ones such as PAYE will also help.  Finally, it is time to insist that all persons file their tax returns so as to ensure that all persons pay their fair share.  We can no longer rely on moral suasion as most people think that paying taxes is wrong.