Significant Changes To The Income Tax Regime In Jamaica Since The White Paper On Tax Reform 2012

The government relies very heavily on taxes levied on the income of Jamaican residents, including taxes on interest earned on investments, salaries and business profits. However, the current situation is that only a small number of persons carry the income tax burden owing to low levels of tax compliance.

Background to Tax Reform in Jamaica

Several pundits have made compelling submissions in support of the case for tax reform in Jamaica, particularly having regard to the fact that the last major tax policy reform took place over the period 1986 - 1991, resulting in the introduction of the General Consumption Tax Act in October 1991. In November 2004, when the Final Report of the Tax Policy Review Committee to the Government of Jamaica (commonly referred to as "the Matalon Report") was published, it was believed that this report signaled the beginning of the road to the implementation of modern tax reform measures to match the demands of a more modern Jamaican economy operating in a more competitive and borderless global market. Still, not much happened for almost a decade. The Ministry of Finance and Planning's policy position on tax reform was issued via the White Paper on Tax Reform dated November 15, 2012 ("the White Paper"), which was preceded by the Green Paper of 2011 ("the Green Paper").

All the public and private sector publications on tax policy and structure agree that tax reform should focus on addressing the following issues: (i) broadening the tax base, (ii) eliminating tax concessions and discretionary waivers, (iii) improving compliance, (iv) making the tax system equitable (both vertically and horizontally), and (v) encouraging economic growth.

Time to Assess the Recent Reform Measures

In this article, I will review the significant changes made to the income tax (direct taxation) regime since the White Paper. The Matalon Report expressly stated that its recommendations were not to be treated as "a menu of reform options from which preferred positions may be selected". The report also strongly recommended that reform should be wide-scale and not piece-meal, as was the nature of the reforms of the 20 year period immediately preceding the Report. The Matalon Report recommended greater reliance on indirect taxation relative to direct taxation, which seems to be the preferred approach in a large majority of countries. It is evident from the White Paper and the Green Paper that the government struggles to effect wide-scale tax reform, while at the same time, budgeting to meet fiscal targets (which in any event, are rarely met). 2 ½ years since the White Paper, it is useful to assess how far-reaching the reform measures have been having regard to the stated policy objectives. It is also useful to assess whether there has been any reduced reliance on income tax to fund the national budget.

Broadening the Tax Base

The policy objective of broadening the tax base, that is, ensuring that more resident individuals and corporations pay their share of taxes, is reflected in a few new laws and tweaking of a few...