I WOULD like to spend a few minutes on the recommendations that the committee has made in respect of the incentives regime and the related issue of tariff structure reforms.
In studying the existing tariff regime, the committee came across some startling facts. Our first observation is that while there are 10 basic tariff categories, within each, there are numerous exemptions and rates vary widely. In addition, several other taxes are imposed on imported goods. The net result is that the existing tariff structure is highly variable and complex, and therefore lends itself well to the machinations of those who would seek to subvert the system to their advantage.
EXAMINATION OF PERFORMANCE
Secondly, a detailed examination of the performance of the system provided some further surprising results. Based upon an analysis of C78 customs forms over an extended period, we found that the average weighted applied or statutory rate of taxes paid on imports was a shade over 10 per cent. Even more surprising is the fact that the average weighted collected rate of taxes on imports amounts to just over five per cent.
The difference between this and the average statutory rate of 10 per cent being accounted for by a wide variety of exemptions, reliefs, and waivers, granted under various pieces of legislation. The implication of all of this is that were we to reform the tariff regime such that there was a
uniform tax rate of five per cent, with no exceptions of any sort, we would collect approximately the same amount of revenue as we do today.
Thirdly, we subjected the tariff regime to the same experiment that was conducted in respect of GCT by modelling an increase equivalent to one per cent of GDP in revenues from this source, firstly via the existing rate structure, and then via a uniform rate structure. The results, as you may expect, are similar and the Average Cost of Funds is significantly lower in the case of a low uniform-rate tariff structure.
Why then has the committee not recommended some rationalisation of the tariff regime along the lines that has been suggested for GCT? The answer is simply that the Government of Jamaica cannot unilaterally effect such a rationalisation because of our obligations under the CARICOM Treaty and the operation of the Common External Tariff or CET. We have however recommended, in as strong terms as we felt was politic, that the Government immediately open discussions with our CARICOM partners with a view to reforming the Jamaican tariff structure in ways that would almost certainly improve the efficiency and competitiveness of our economy.
RELIEFS AND EXEMPTIONS
This issue is also closely related to that of the local incentives regime. By far the most significant benefit derived under existing incentive legislation are those reliefs and exemptions from import duties and other imposts at the point of entry. And having discussed the wide dispersion in applicable rates on imports, it is easy to see why these reliefs are necessary. We clearly could not expect that the tourism industry for example, could remain competitive if faced with relatively high duty rates on a number of its inputs, while operators in competitive destinations are afforded relief. And indeed this is why we have recommended that for the time being, such reliefs continue to be granted.
CONCLUSIONS
I would like to thank the Jamaica Conference Board for the opportunity of making this presentation. It is fora such as this that I hope will more and more provide the opportunity for meaningful and thoughtful discussion of the important issues involved in any major process of tax reform. The debate is healthy and can only improve the quality of what is essentially a socio-economic, but also a political process.
