Government of Jamaica eyes sin tax

The GOVERNMENT has been toying with the idea of increasing taxes on alcohol and cigarettes as it moves to plug a gaping hole in the Budget.

Finance Minister Audley Shaw will today reveal whether that move will go forward as he tables the first Supplementary Estimates, which government sources say will show an approximately $12 billion increase in expenditure.

The increase, however, would be significantly cushioned by reductions in the budgets of some government agencies, as well as savings in interest payments under the Jamaica Debt Exchange (JDX).

A $503-billion package was approved by Parliament in April, and the Supplementary Estimates are not expected to cause any major expansion in that figure.

If new taxes are announced, it could run counter to a promise by Shaw not to increase taxes until Jamaica has seen the back of the International Monetary Fund (IMF).

"I will boldly state today that it is not my intention, over the medium term and certainly during the term of the IMF agreement over the next 27 months, to introduce any new tax at all," Shaw told a Jamaica Chamber of Commerce post-Budget Debate forum in April.

"We are going to focus on tax compliance, and we are going to focus on widening the tax net," Shaw added then.

Up to yesterday, it was unclear whether the Bruce Golding-led government would go the way of new taxes as persons close to the administration believe it could have political implications.

The Government could face strong reaction from alcohol-producing companies such as Desnoes & Geddes Limited.

The company, which trades as Red Stripe Jamaica, has been lobbying the Government to adjust its special consumption tax policy. The company has blamed the tax for its poor performance during the past year. Sales revenue dropped one per cent to J$13.33 billion on weaker volumes in the year ending June 30, 2010, and profits were cut in half to J$789 million.

The tax on stout beer stands at 25 per cent, the same as taxes on spirits.

The Government last increased taxes on cigarettes in 2008 when Shaw moved to collect an additional $2.88 billion from tobacco. Shaw then stayed away from imposing taxes on cigarettes and alcohol in the 2009-2010 fiscal year.

No new taxes were announced for the 2010-2011 year, but the Government has found itself strapped for cash as a result of underperforming revenue streams. The move has forced the Government to cut back on several expenditure items, among them $5 billion, which was earmarked for the building of houses by the National Housing Trust.

Golding, the prime minister, has already indicated that damage associated with Tropical Storm Nicole, as well as the Tivoli Gardens military incursion, would be reflected in the Budget.