Byron Blake | Proposed tax plan and its implications

The 2025 general election was contested on the basis of the tax offerings of the two major political parties.

Jamaica has one of the heaviest tax burdens in the Caribbean. And Income distribution is one of the most inequitable. The three-letter word “tax” is neither harmless nor neutral. It redistributes income among Citizens. It increases or decreases income inequality.

Governments have an increasing appetite for revenue, but they are sensitive to the impact that tax extraction can have on the voting population. They are equally aware of the attraction of any promised reduction or relief in taxes on a population living on the margin, or which has an insatiable appetite for wealth. Those are the conditions of the two dominant segments of the Jamaican voting population.

The manifestos presented taxation proposals based on contrasting taxation philosophies. The JLP’s plan was based on lowering direct taxes and reliance on indirect taxes, with a modest increase in the tax threshold. The PNP’s plan, in contrast, was based on maintaining the current Income Tax rate, doubling the income tax threshold, that is, from J$1.7 million to J$3.5 million, and removing taxes on overtime earnings.

The voters had a clear choice. A system under which the weight of the tax burden falls on those with greater income or on those with lower income. This is not a choice unique to Jamaica. The two philosophies of taxation have been in contention since the Great Depression of the 1930s. With the focus on development and a leaning towards greater equity after World War II, there was a movement towards direct taxation, considered progressive, as the burden fell proportionately on those with the greater income. The emergence of structural adjustment policies of the 1980s, championed by President Ronald Reagan of the United States and Prime Minister Margaret Thatcher of the United Kingdom, and supported by the World Bank and the IMF, shifted taxation focus to indirect taxes.

INDIRECT TAXATION

The JLP has had a historic preference for indirect taxation. This was restated in its manifesto and reinforced by Robert Morgan in an interview with Emily Shields.

Main elements of the JLP’s tax plan are:

Tax reductions

• Lowering income tax rates for individuals and businesses from 25 per cent to 15 per cent.

• Increase the tax threshold from the current 1.7 million to 2.0 million, but without any dates or schedule.

Incentives for Investment

• Introduction of tax incentives for local and foreign investors.

• Tax breaks to encourage job creation.

Support for small businesses and social programmes

• Reduction of taxes for small and medium-sized enterprises (SMEs).

• Reallocating tax revenues to fund social programmes.

Social Programmes Funding

• Reallocating tax revenues to fund social programmes.

The JLP introduced, three days before election day, a proposal to double the minimum wage from the current J$16,000 per five-day week to J$32,000. While this was not in the manifesto and is not strictly speaking a tax, it represents a transfer, part of which will be financed by the Government.

The JLP’s plan is premised on:

1. GDP growth of one per cent per year.

2. Continuation of GCT at the existing rate as restated in its manifesto.

3. Additional unspecified indirect taxes.

The JLP’s tax plan is difficult to analyse, because, among other things:

• There are neither start times, the phasing for the income tax reduction, nor the proposed changes in the threshold increase.

• There is no costing or timing of the tax incentives for investors to upgrade their technology, invest in renewable energy, or expand their workforce.

BROAD IMPLICATIONS

We can see some broad implications, however. First, growth of one per cent in the context of a Bank of Jamaica (BOJ) inflation target of between four per cent and six per cent, a weak currency, and high dependence on imports represents negative, not real growth. A large part of the population will become increasingly poorer, even while working harder. Growth, more than five per cent, will be needed to avoid this outcome. The last time the JLP targeted a growth of five per cent after four years, they failed to achieve it.

A Jamaica that grows at less than five per cent a year will, at the celebration of its 100th Anniversary of Independence, be at a level of per capita Income akin to where CARICOM countries like The Bahamas are today.

Second, indirect taxes are regressive, that is, they fall heaviest on the poorest. GCT, the main indirect tax in Jamaica, is charged on the inflated price of all goods and services. GCT currently accounts for approximately one-third of Government revenue. With every percentage increase in inflation, there is an automatic increase in the GCT tax take. For example, with six per cent inflation, there is an automatic two per cent increase in total tax extracted from consumers through GCT. Former Finance Minister Nigel Clarke’s constant refrain of “no new taxes” was only true semantically. Each year, there was an inflation-induced increment above the expected GCT take. This situation will continue under the new dispensation.

These taxes are levied on expenditure. The poor have no choice but to spend whatever money comes into their hands. They have no savings and so cannot invest. They cannot generate inter-generational wealth. Their families are destined to remain poor.

Third, the reduction in the income tax rate from 25 per cent to 15 per cent will be of clear benefit to companies and individuals with significant income. It will be of no benefit to those with an income up to J$1.7 million. But they will bear the full weight of GCT. Income earners above J$1.7 million will benefit, but will this offset the additional cost of the GCT and any new indirect tax they face?

Fourth, will the money saved by the high-income earners be invested to increase the growth rate? There is no historical evidence to suggest that this would stimulate the required growth discussed earlier.

Ambassador Byron Blake is former deputy permanent representative of Jamaica to the United Nations and former assistant secretary general of CARICOM. Send feedback to columns@gleanerjm.com