By Andrew Green, Staff ReporterCHANGES IN the April $13.8 billion tax package, aimed at easing the burden on the private sector, will instead increase government revenues at least another $1 billion, say analysts.
The private sector appeared to have won major concessions from the Ministry of Finance and Planning with adjustments of the four per cent cess on imports, and in the imposition of General Consumption Tax on imported packaging material. However, the reality is somewhat different.
"In every case where they have backpedaled and come to an alternative, the estimate is working out in their favour," said economist Omri Evans, about the Ministry of Finance and Planning negotiating position.
"They are not going to lose anything on the revenue side," said Jason Morris, research analyst at Jamaica Money Market Brokers. He said the Government will get an additional $1 billion instead.
PROJECTION
Finance Minister Dr. Omar Davies projected $132 billion in taxes and grants for this fiscal year, starting April 1. With loan receipts projected at $116 billion, the $13.8 billion in extra taxes was intended to provide funds to finance the planned $261.3 billion in spending this year.
The major adjustment to the additional tax package has been the change of the four per cent cess on imports into a two per cent user fee, Mr. Morris said. Half the four per cent cess was to have been refundable, while the two per cent fee is a non-refundable charge.
A two per cent fee offers advantages to companies, which will now retain control of more of their cash. As well, the cess would not have been refunded if a company was making losses.
"The Government lost about $1 billion there, and they replaced that with a tax on gaming, which should yield about $2 billion," Mr. Morris said. The result is an extra $1 billion in revenues.
With that additional $1 billion, the Government can afford to make concessions, such as the change in General Consumption Tax on packaging material announced last week, Mr. Morris said.
Financial analyst, John Jackson, said "they may give up something here or there, but I don't think they are going to be worse off." He added that "they will be far better off."
The Government has underestimated the level of revenue inflows for this year, Mr. Jackson said. Natural inflationary factors in the society will throw up a greater level of General Consumption Tax and Special Consumption Tax than has been projected.
REVENUES
"Tax revenues have been growing at over 20 per cent for the first two months of the fiscal year," Mr. Evans said. "The revenue flows have been buoyant."
Barring severe shocks such as a hurricane or terrorist attack, "they should moderately exceed this year's revenue target," Mr. Morris said.
But it is not clear how the increased taxation, accompanied by higher interest rates and devaluation of the currency will impact on the consumer, Mr. Jackson said. The April to June quarter might not show much impact, he said, "but in the second and third quarter, I would expect there to be severe pressure on the consumers."
But Mr. Jackson said that if consumers start to cut their purchasing, that might affect the increase in tax collection.
"The more worrying thing is that the sharp increase in recurrent spending is eating up all of that revenue," Dr. Evans said. Revenues might be improving, but Government's spending is also increasing.
"The question is whether or not they are going to exercise fiscal prudence," Mr. Morris said. "We will have to see it to believe it."
And given the reverse the Government suffered in the Local Government elections, "there may be pressure to spend their way back to popularity," Mr. Jackson said. "Therein lies the danger."
