There has been a general consensus that a country’s ability to mobilize revenue through taxation is synonymous with its capacity to achieve sustainable growth and development (Di John 2006). Through increased taxes, the state can influence the direction in which the economy moves and the pace at which social goals are achieved. As such, tax revenue is one of the main ingredients forming the mix of a Government’s fiscal policy. With the expansion of the role of the state over the last 100 years and, the general consensus that an effective tax system is needed for growth, the need for tax reform has been at the forefront of public policy discussion in both developed and developing economies.
I have, over the years, watched as successive administration struggle to reform Jamaica’s inefficient and burdensome tax system. The general public, and most notably, the private sector/business community, have voiced their concerns about the nature of Jamaica’s tax system and its impact on individuals and economic growth. Several business interests, tax policy analysts, and international donor organizations have highlighted tax reform as an urgent and fundamental course of action to improve Jamaica’s economic future.
There have been numerous reviews and studies carried out on the Jamaican tax system since the 1980s. The purpose of each review has been to analyze the Jamaican tax structure with a view to determining its inefficiencies, the sources of those inefficiencies, and to make recommendations for improving those inefficiencies. The reviews and studies have provided in depth technical analysis of the tax structure and have outlined the necessary steps that will lead to effective reform.
So why can’t we get it right?
Because we operate in a political economy. As such, we are more focused on what is popular than what is right. the focus of the ruling party is to secure victory for the in the next election. The comprehensive reform that is needed to ensure efficiency and equity is not politically expedient and would definitely not fall favor to the big business bosses in Jamaica; most of whom, pumps significant sums of money to finance election campaigns. As such, the recommendation that are from these reviews have not been implemented in a holistically comprehensive manner as was intended by the authors. Successive government administrations over the last three decades have systematically “cherry picked ” ad-hoc recommendations in an attempt to overhaul the tax system in the hopes of making it fairer, simpler and growth friendly (Matalon, 2005) and to improve the government’s revenue (Bahl and Wallace 2007; Blueprint 2009). However, they have failed to make an effective change.
As such, the Jamaican tax system continues to exhibit structural inefficiencies and a weak administration, highlighted by uneven tax practices. Various classifications within tax categories, each accompanied by incentives and exemptions, have created a complex and burdensome system. Differentiated taxation due to negotiated special treatment among various groups encourages tax evasion and undermines revenue performance. A focus on taxing the easiest to reach bases such as PAYE, Income Tax on interest, and General Consumption Tax (GCT) has placed a heavier burden on a small population of taxpayers. The discretionary granting of exemptions, special treatments, and waivers has severely compromised the principles of equity and simplicity, which are fundamental to an effective tax policy.
Consequently, the current tax system is unnecessarily complex; reflects narrow tax bases; and is highly inequitable. These features create loopholes for non-compliance, which unnecessarily burdens those with the least ability to pay, eroding the revenue generating capacity of the system. This deficit in revenue caused by an ineffective tax system is the major impediment to economic growth in Jamaica. Without reform of the current tax system, focusing on increasing compliance, development is not likely to occur anytime soon.