Tax Reform Necessary to Reduce Jamaica's Budgetary Deficit & to Promote Economic Growth

Tax reform is necessary if Government is to reduce the budgetary deficit in 2005/2006 and to ensure economic growth.

This was the view of Dennis Chung, Chartered Accountant and Group Financial Controller of Jamaica Money Market Brokers during a presentation on "Implications for the National Budget" at a recent forum hosted by the Institute of Chartered Accountants of Jamaica (ICAJ) at the Knutsford Court Hotel.

The forum, entitled "National Recovery: Can Jamaica Afford it?, was aimed at engendering debate on existing and potential capital development, tax reform and the national budget and implications for national development efforts. The forum also sought to examine the reasons for the lack of economic growth in Jamaica over the past ten (10) years and the social and economic implications of correcting this situation.

Mr. Chung noted that the limitations of the present tax system were highlighted by the fact that tax revenues between April and December 2004 were J$4.6 billion below budgetary targets. According to Mr. Chung, restructuring the tax system would ensure an efficient tax collection process and provide opportunities for increasing revenues.

He argued that Government should move away from direct taxation, which was a burden on investors and local companies, to implementing a more investor-friendly taxation system that would encourage investments and greater economic activity. This in turn would generate more tax revenues.

"If we are serious about becoming competitive and increasing investments then Government must look towards these options," Mr. Chung stated.

The challenge for Government in meeting fiscal targets for 2005/2006, he noted, was that of increasing revenues while decreasing expenditures, lowering interest rates in order to stimulate investments and maintaining a stable exchange rate.

He added that other issues that required urgent attention in the process of national development and growth were a reduction in the level of crime and violence and improving the quality of education and training of the labour force.

Chairman of the Tax Reform Committee, Joseph Matalon, in addressing the issue of "Tax Reform and its impact on National Development," put forward a number of measures that Government would need to implement in order to balance the budget and achieve economic and fiscal policy objectives.

He stated that one option was for Government to further curb its expenditure and to reform the tax structure by eliminating certain taxes, which would release resources that could be reallocated to improving efficiencies through better collection and enforcement.

Another option, he said, was to improve economic performance and GDP growth. This could also be achieved through a reformed tax structure, as it would remove impediments in the current structure thereby stimulating productivity and growth.

"The IMF and other multilateral agencies are saying that we need to close our budget deficit and balance our budget. Estimates are that between 1.7 and 2.1 percent of GDP or between $5 or $10 billion of additional tax revenue will be needed by the Government to close the gap," Mr. Matalon stated.

Addressing the Committee's recommendation that the Government substantially increase the tax on motor vehicle and other fuels, he stated that an international comparison of taxation on fuels revealed that the mean average amount of tax in a litre of gas worldwide was 44.1 cents but in Jamaica it was 11.9 cents.

"Relative to the United States of America, Brazil or Mexico, all of whom are large oil producers, the level of tax that Jamaica levies on fuel is extremely low and as a country that does not have any fossil fuels we could generate significant revenue from that source and in so doing, be able to reduce other taxes, such as labour taxes," he noted.

Ralston Hyman, Financial Analyst noted that Government's ability to meet its fiscal target was the most important factor in ensuring the country's recovery from the last ten years of stagnation due to the huge debt burden, high fiscal deficit, high debt to GDP ratio, the diversion of resources from basic social services and the concentration of investment capital in Government paper.

For further information, please contact: 
Public Relations Department 
Tel: 754-9328 
E-mail: pubrelations@cwjamaica.com.



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