JOSEPH M. Matalon,
chairman of the committee undertaking a review of the country's tax system, has said that equity and fairness were two of the key components being looked at in the evaluation process.
"A tax system can only be effective if it is perceived by those who are taxed to be a fair system," he said in a recent interview.
As such, the current tax review process has involved members of the public who have been invited to make submissions for reform. Mr. Matalon informed that the submissions were being analysed by a technical team and would be taken into consideration in the reform package being recommended.
DETERMINING EQUITY
According to Mr. Matalon, equity is determined in two ways, that is, through vertical and horizontal externalities. Horizontal equity refers to individuals who are on the same income level and are
paying approximately the same proportion of their total income in taxes. "I am not just referring to individual income taxes but to all the taxes, both direct and indirect", he explained.
Meanwhile, vertical equity looks at the proportion of a person's earnings that is taxed based on the income level. Therefore, "if as a person's income rises, a greater proportion of it goes into taxes, this is referred to as a progressive system." He pointed out that if the percentage of tax paid did not change as income rose, then this was referred to as a proportionate system, and was regressive if the lower income classes were paying a greater percentage of their income in taxes than the higher income classes.
In addition to equity, Mr. Matalon said the committee considered the issue of simplicity. "We would want a system that is as simple as possible to administer, as it encourages compliance and lowers the cost of administration so that net yield after administrative cost of the tax dollar is higher, allowing government to have a greater proportion of that gross revenue to provide public services."
The committee chairman said that consideration was also given to the matter of economic efficiency, that is, "does the tax system and
the manner in which various taxes are imposed create distortions in the economy, and is it encouraging capital into one particular area
to the detriment of others based purely upon the tax structure
and not on underlying economic reality?" he asked.
REVENUE NEUTRALITY
Overall, Mr. Matalon said that the tax system is being reviewed from the point of view of revenue neutrality, so that while the committee may propose a reduction in tax intake for some areas and an increase in others, the final position should not result in an overall increase in the total tax burden.
Prior to the current review, the last comprehensive reform of the tax system took place in the 1980s with technical support from the Andrew Young School of Policy Studies at Georgia State University in the United States. A number of the persons involved in the process back then are a part of the existing review.
According to Mr. Matalon seven papers will be produced, including five individual tax analyses. They include analysis on personal income tax and payroll taxes; the general consumption tax (GCT) and special consumption tax; property tax and property transfer tax and stamp duties; corporate income tax and the incentive regime, which exists for corporate entities and taxes on international trade, including custom duties and any other tax that is levied at the point of entry.
A sixth paper, he said, would be burden analysis which seeks to establish who pays taxes in Jamaica and the proportion of their income tax represents taxes across all the various types of taxes.
Additionally, a seventh paper would be a general economic analysis involving the technical team working closely with the Planning Institute of Jamaica (PIOJ). The paper will present a general equilibrium model of the economy to allow the committee to posit possible relative outcomes of the various reform options in terms of consumption, investment, and consumer welfare in the Jamaican economy.
"Those five tax analysis papers plus the burden analysis and the general economic analysis will culminate in a final paper of comprehensive reform options," Mr. Matalon said.
The final report is scheduled for completion in October.
