Pressure forces Jamaica PM to review tax package

Golding made it clear that the choices were extremely limited and there would be no easy way out.

KINGSTON, Jamaica, December 21, 2009 – Prime Minister Bruce Golding, whose government is under severe criticism and pressure from citizens and the opposition People’s National Party (PNP) for its J$21.8 billion (US$246 million) tax package, could pull back some of the measures announced just days ago.

In a statement issued yesterday, he said he had “heard the cry and the appeal of the Jamaican people” and would review the tax measures revealed in Parliament last Thursday. The government had insisted that they were needed as the country prepares to enter a US$1.3 billion agreement with the International Monetary Fund (IMF).

“It is my intention to re-examine the existing composition of the tax package in order to determine if there are suitable alternatives to finding the $21 billion of revenue required to support the programme negotiated with the IMF, while at the same time reducing the harsh impact on the society especially the poor and vulnerable during these very difficult times,” the Prime Minister said.

However, Golding made it clear that the choices were extremely limited and there would be no easy way out.

He said Jamaica’s current revenues cannot meet required expenditures and the country cannot borrow its way into an even worse crisis.

“Nor can we shut down vital services that the government has to provide for the country. Discussions with the financial sector toward a substantial reduction in the cost of servicing our debt are well advanced and should be concluded shortly,” Golding said.

“We remain resolute in our determination to do what is best for Jamaica in these difficult times while being sensitive to the difficulties which our people are already experiencing.”

His announcement came mere hours after the PNP called on supporters to take part in “disciplined, principled, peaceful” street protests, starting today, against the tax measures that are scheduled to take effect January 1st, 2010.

Under the measures announced by Finance Minister Audley Shaw in Parliament last week, the General Consumption Tax (GCT) will move from 16.5 percent to 17.5 percent; and the number of items exempted from the tax will be reduced, meaning that some food items including bread, canned sardines, mackerel, fresh fruit and vegetables, meat, poultry, fish, and corned beef, will attract the tax for the first time.

Additionally, GCT will be paid on electricity consumption above 200 kilowatt hours per month; adjustments will be made to the Special Consumption Tax on fuel; and tax on cigarettes will increase from J$8,500 (US$95) to J$10,500 (US$118) per thousand sticks.

"Are you ready to demand that the Government roll back the unjust and inequitable taxes? Then go forth, comrades with discipline. Await the instructions for the various protests across this country," PNP President Portia Simpson Miller told an emergency meeting of the party's National Executive Council.

Meantime, President of the Private Sector Organization of Jamaica (PSOJ), Joseph Matalon, has supported the announced tax package, saying that although it is perhaps one of the largest in the history of the Jamaican economy, it is necessary in light of the impact of the global economic crisis on Jamaica.

"These are, in fact, tough times and tough measures are required in tough times," he said.

Matalon chaired the Tax Policy Review Committee appointed by former Minister of Finance and Planning, Dr Omar Davies, which examined each of the main sources of tax revenue and their impact on the economy and handed in a report to Government in November 2004.

"I believe that there is recognition among the (private sector) membership, including our association membership, that tough measures were required, and I think it was anticipated that, in addition to those initiatives already announced that are designed to compress the level of public expenditure, there was going to be the need to raise significant additional revenue," he added.

The PSOJ President pointed out that measures, such as the increase in the GCT rate and the widening of the tax base via the removal of exemptions, reflected the organisation's position and were recommended in their 2004 report.

However, he said he was disappointed that there was not a more aggressive widening of the tax base.

"We believe that the Government may find that there are diminishing returns in terms of revenue performance from increases in the rate of GCT, and that it would have been much more efficient, from an economic standpoint, to have even further widen the base and use the additional revenue generated to actually reduce the rate of GCT," he contended.

He said that one of the PSOJ's main disappointments with the announcement was the "fairly narrow range" of taxes targeted, rather than a more "comprehensive approach" to incorporate various other tax inputs and regimes, such as corporate and personal income tax and property tax.

"The property tax is a tax that has underperformed for many years. The level of compliance has been very low, something on the order of about 40 percent, I believe. So we would have liked to have seen measures designed to address the performance of Property Tax," he said.

Other recommendations he contended should be considered, include unification of the tax structure; simplifying it in the process; and a more comprehensive reform of the tax regime across all of the various tax types.