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Tax Reform for Growth

Tax Reform for Growth. INTRODUCTION. Tax reform requires priorities to maximize impact Draws upon… “The Final Report of the Tax Policy Review Committee to the Government of Jamaica” (2005) “Tax Reform and Economic Development: The Jamaican Case” (2007) by Bahl and Wallace

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Tax Reform for Growth

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  1. Tax Reform for Growth

  2. INTRODUCTION • Tax reform requires priorities to maximize impact • Draws upon… • “The Final Report of the Tax Policy Review Committee to the Government of Jamaica” (2005) • “Tax Reform and Economic Development: The Jamaican Case” (2007) by Bahl and Wallace • “A Blueprint for Taxation Reform in Jamaica” (2009) by the National Planning Summit Tax Reform Committee

  3. CENTRAL QUESTIONS • If sufficient revenue is not being generated, two central questions must be asked: • Is government spending excessive or wasteful? • Is the particular design of the tax system impeding its ability to generate revenue?

  4. EVALUATING A TAX SYSTEM • Revenue • Efficiency • Fairness • Integrity • Growth

  5. The NUMBER ONE objective should be to stimulate economic activity in order to achieve economic growth and prosperity

  6. THE PROBLEM • Next to crime and theft, inefficient government bureaucracy ranked most problematic factor for doing business • Jamaica ranked in bottom ten of 183 countries assessed for ease of tax compliance. • Most detrimental aspect was required number of tax payments per year.

  7. SIMPLIFYING • Extend the period of validity of the Tax Compliance Certificate • Design and implement a Unified Tax Return • Permit GCT groups • Permit bi-monthly filing for small taxpayers

  8. BENEFITS OF SIMPLIFYING • Lower cost to businesses for compliance. • Increased compliance. • Improved fairness • Lower tax administrative costs • Less distraction from core business activities • Higher levels efficiency in the tax system • Higher levels of economic growth

  9. BENEFITS OF SHIFTING FROM DIRECT TAXES • Revenue stability • Simpler/Less costly Administration • Increased compliance

  10. HOW TO SHIFT • Since GoJ’s position is weaker than most of its regional counterparts, it is likely that: • Either the tax rate would need to be higher than the regional average. • Or, the tax base would need to be wider than the regional average. • Or, both.

  11. HOW TO SHIFT • If the social safety net is not otherwise adequate, an argument may be presented in favour of maintaining a higher than average VAT rate on a restricted base

  12. IMPORTANCE OF SOCIAL PROTECTION • Restricting the indirect tax base shields the rich. • Focusing on the direct spending approach rather than restricting the tax base would result in net revenue savings to the government. • More social protection can be afforded by using the direct spending approach.

  13. MAKING THE SHIFT • Reduce the CIT rate • Raise the personal income tax threshold • Eliminate zero-ratings on supplies to government

  14. TAX EXPENDITURES • Tax expenditures are concessions designed to provide a benefit for either a specific activity or class of taxpayers. • In Jamaica, concessions relating to GCT and tax incentives are the largest amounting to about 6% and 4% of GDP, respectively.

  15. PROBLEM WITH INCENTIVES • Defended based on the assumption that they provide stimulus for economic activity, • The revenue losses necessitate elevated overall tax rates. • They provide a disincentive for the rest of the economy.

  16. DISCRETIONARY WAIVERS • Compromises fairness and integrity. • Encourages a culture of non-compliance.

  17. HOW TO RATIONALIZE • Eliminate discretionary waivers • Present a tax expenditure budget

  18. BENEFITS OF REDUCING TAX CONCESSIONS • Improved fairness and integrity. • Increased compliance. • Revenue increase of more than 2% of GDP from eliminating discretionary waivers. • Potential gain of an additional 1.9% of GDP from eliminating other tax incentives. • Stimulating growth

  19. CONCLUSION • The three priorities for tax reform in Jamaica should be to: • Simplify the System of Compliance • Decrease reliance on Direct Taxes • Eliminate the Inefficient and Ineffective use of Tax Expenditures/Concessions (FIRST PRIORITY!) • The Green Paper prioritizes 1 and 2 • The specific actions recommended would improve all five criteria for determining the efficacy of the tax system (efficiency, fairness, integrity, growth effects and revenue generation) but, most importantly, encourage economic growth.

  20. Tax Reform for Growth

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