Following the recent supplementary budget by Audley Shaw it seems that the tax system in Jamaica is going through serious turmoil. Even with the prime minister, Bruce Golding announcing a roll back of taxes on some items. The rates announced by Golding and Shaw seem onerous. The proposed 27.5% increase for taxpayers earning $5M to $10M, and over $10M paying 32.5% seem quite rigid, even though this will end in March 2010. Golding says this is to cap the loss from the roll backs. It really seems that not much thought was put into the recent adjustments to the tax rates.


While I fully agree with increasing GCT to 17.5%, I still believe that the rate is too low. My proposal would be to increase GCT to 25% and to eliminate income for persons earning under $2M. The fact of the matter is that the compliance rate for income tax is currently 45%, which in essence means that the majority of the pressure falls on PAYE's. The self-empployed and Companies continue to evade taxes at an alarming rate.
The Government in their presentation has failed to highlight the nature of Jamaica's economic failures.


It should be noted that the past administration created a one trillion dollar debt problem, which has led to the current problems faced by Jamaica. It does not take an economist to understand that if your debts outweigh your income then you are in a serious problem. Consider this, if you are earning a $1000 a month and your expenses are $2000, then you are in a deficit of $1000. Where does this lead you? You are forced to borrow from some where. But where do you borrow? You may choose to go to the bank, or to some overseas lending institution. This is Jamaica's problem at the moment. They have issued several financial instruments locally to raise capital, but still do not have enough money to pay their bills. They then go to the international lending agencies, but guess what, Jamaica has a poor credit rating, which means that even if they can get a loan, the rates to borrow become higher. So what? In comes the International Monetary Fund (IMF), you know, the agency that everyone says has wrecked Jamaica. However, when the IMF comes in, they literally take over the reins of Government, dictating what policies must be introduced in order for you to get money from them. In the end we are faced with the current situation.


The IMF requires Jamaica to take drastic decisions. They have realized that Jamaica's tax system has been run like a "patty shop", which is not sustainable. However, the opposition party continues to live in a dream, thinking that Jamaica can borrow its way out of debt forever. The one trillion that we owe will haunt our unborn children's children and on and on.


The major problem with the Jamaica's tax system is the enforcement side of things. If we analyse the infamous IRS tax system, we see that when you evade taxes you go to prison. In Jamaica when you evade taxes you get a slap on the wrist. My belief is that the minute you make tax evasion a criminal offence, with at least 5-10 years in prison, we will see a change in our compliance level. The Tax Department is not to blame, or the many consultants who have made recommendations, it is the past and present Government that must bear the blunt. It is  those who continue to protect the many tax evaders, who may be friends or family. The public has remained silent on the matter, thinking that by evading taxes they will prosper.


It is common for people to complain that in "Jamaica when you pay taxes you don't see where it goes, but in the US or Canada you can see their tax dollars being spent" is flawed and trapped in another time. The truth is that US and Canada enforce the brunt of the law on tax evaders. In Jamaica when you collect taxes they are used to pay the massive debts, and after that, they have to borrow more money to pay for the internal bills, such salaries, roads, health and on and on. So why are we surprised by this? The reason is that we continue to live in a dream world where we compare ourselves to others instead on owning up to our responsibilities.


To fix Jamaica's tax system strong decisions must be taken now. Not just increasing taxes alone, but making tax evasion a criminal offence which is punishable by prison terms. The Tax Department I am sure is aware of all the tax evaders, but their hands are tied if they can't enforce the full brunt of the law. The Government and the opposition must sit down and put in the necessary legislation to make tax evasion a criminal offence. However it must be a fair system that targets the poor and the rich. The IRS made an example out of Al Capone as one of their famous tax cases. Al Capone went to jail for tax evasion. Martha Stewart went to jail also, and many other famous persons. 


What is Jamaica waiting on? Act now....