Dennise Williams, Staff Reporter
Joseph M. Matalon, Chairman of the Tax Policy Review Committee speaking at the Pan Caribbean review of the new tax agenda at Terra Nova Hotel, recently. - Rudolph Brown/Chief Photographer
JOSEPH M. Matalon, chairman of the Tax Policy Review Committee has cited the need for greater public discussion on the various proposals of the committee.
Mr. Matalon was the guest speaker at the PriceWaterhouse Coopers forum on tax reform held at the Jamaica Conference Centre on Monday.
To date, the recommendation for tax on capital gains has created a stir. Pundits have made predictions of the subsequent crash of the Jamaica Stock Exchange if implemented.
Also the 'incendiary' issue of taxation on motor fuels has also fuelled public debate. But Mr. Matalon argues that the method behind all the tax reform recommendations is to create a more equitable and efficient tax system.
"I would encourage my colleagues in the private sector not to isolate proposals from the package as a whole but rather do the math in terms of the reform package's overall impact on their net tax liabilities. Transfer taxes and stamp duties are being either eliminated or significantly reduced across a broad range of asset classes.
REDUCTION IN LABOUR COSTS
"The standard rate of corporate income tax is reduced from 33 1/3 to 25 per cent and the double taxation of private company distributions is being eliminated. Additionally, labour taxes and therefore labour costs are being reduced. Will the impact of these measures on your bottom line be totally eroded by the taxes you will now pay on gains on sales of shares? I think not."
Mr. Matalon also highlighted the fact that his committee has addressed one of the greatest tax inequities in the current system - the burden on the salaried employee. He informed the audience that compared to other countries, "the Jamaican tax system relies heavily, at approximately 42 per cent of total revenues, on taxes on income and payroll taxes." In fact, Mr. Matalon noted that after the current tax-free threshold, Jamaican workers pay 40 per cent of their salaries in taxes.
According to the Matalon Committee, the tax-free threshold would be increased to $275,184 from $120,432.
The burden is not on the employee alone, as employers have to make monthly matching or proportionate contributions to the National Insurance Scheme, National Housing Trust, Educa-tion Tax, and HEART.
What does this translate to?
According to Mr. Matalon, it means that under the current system, it is more beneficial tax-wise to invest in capital such as stocks than to set up a business and employ labour.
"I cannot imagine that this could be the intended result in a country with a 15 per cent rate of unemployment...and a govern-ment that holds poverty alleviation as one of the main planks of its economic and social policy platform. And this seems doubly strange when one considers that most economists would suggest that our brightest economic prospects lie in the growth of service industries such as tourism and information technology."
However, on the flipside, there are a great number of Jamaican households that do not make up the working or investing classes; and tax reform for wages would not help them and tax increases on consumption would hurt them.
Recognising this, Mr. Matalon states, "Tax burden analyses show that the tax reform package would add an additional $700 per annum per individual amongst such households. Increased taxes would be viewed as an unjust imposition that adds still further to the heavy burdens they face in their everyday struggle to survive."
Despite this fact, Mr. Matalon stated, "The gains in economic efficiency of the proposed reforms were so potentially significant as to demand that we find some means other than the tax system itself to ameliorate the small increased burden on the lowest income individuals. And I for one refuse to believe that it is somehow beyond our collective capabilities to succeed in the effort."
