Thursday, April 05, 2012

The importance of correct tax reform

As we are approaching the completion of the white paper for tax reform it is very important that we understand the importance of getting the tax reform process correct. When this administration came to power in December 2011, Minister Davies said shortly after that the administration would extend the timeline for the tax reform agenda, as it was very important to ensure that proper consideration was given to the process. I totally agreed with him, because the green paper I felt would not have provided us with the necessary impetus for any long-term benefit, rather just delivering temporary fiscal space, which is how we have approached tax policy in this country for a long time.

In fact the last time any significant effort was made to use tax policy to positively affect the economy was in the mid-1980s. Every other time we have changed tax policy has been to provide additional revenue for the fiscal accounts, at the expense of the economy.

In fact I believe that we have become so accustomed to thinking about the government accounts even before the economy, that the private sector when making proposals about taxation measures always seem to be more concerned with maintaining or improving government finances than the economy. This while they seek to eke out some benefit for the private sector, by apparently not upsetting the government's voracious and never-ending appetite for taxes.

This is demonstrated in the fact that the latest private sector proposal seems overly concerned with providing the government coffers with an additional $7 Billion, in the hope that the government will allow some of the much needed reform as outlined in the proposal.

This I think is the main problem with how we approach, not only tax reform, but economic solutions. Our primary focus on the fiscal accounts, to the detriment of the wider economy, always gets us into a worse fiscal situation. The evidence is there for all to see and analyse.

So as we prepare to finalise the tax reform white paper, we must ascertain what objective we are trying to achieve through tax reform. Will we continue to focus on the fiscal accounts, and try to pull more money from the economy to fill the significant fiscal gap we face, or will we be bold enough to apply apropriate measures that will lead to economic development and a better long-term fiscal situation? This is what countries like the US did by reducing the tax rate in order to allow for greater economic activity. We will not be able to approach it in the same way, as we have other social issues that would prevent maximum value, but our approach must be in that direction.

Our approach to tax reform should include measures to ensure that there is greater growth in the economy. If we have this as our objective then we can look at the various proposals and determine how the economy will benefit from their implementation. I will address some of the major proposals.

The first thing is the matter of the expansion of the GCT on basic items, while at the same time lowering the rate across the board and having a more targeted welfare system. This to me seems like a logical argument, as currently most of the benefit from the exempted items goes to the higher income group which has the ability to spend more than the lower income group. If we are able to better target these benefits to the lower income group then it does make sense to go with this proposal, as it will mean that, contrary to the emotional responses, more money will get into the hands of the poor. The key to this is to ensure that we have an efficient means of targeting the benefits to the poor.

The second proposal of lowering the corporate tax rate to 15 per cent, for most companies, is a desirable objective, in my view. However, it is more important to ensure that rate reductions happen first with the PAYE group, as the propensity to spend is greater in this group, which will have a more positive effect on the economy. If we therefore need to phase the reform proposals, as I think is the prudent thing to do, then I would marginally reduce the corporate tax rate (to maybe 25 per cent), while having a much steeper reduction in the PAYE rate.

This takes me to the proposal to increase the GCT rate for the tourism sector. One of the challenges here is that there needs to be further consultation with the hotel sector, in order to do some simulation on how this would affect their own viability and the economy. It is important to consider this carefully as the hotel industry is extremely important to the economy as a whole and any attempt to increase the GCT rate that negatively affects the sector could have a devastating impact on our foreign exchange earnings, which could be hard to reverse.

One other proposal, which I would not agree with, is to remove the 50 per cent tax break for the companies that list on the Junior Stock Exchange, for the second five years of their listing. If you think about it, this is a small price to pay for the benefit of formalisation and increased employment that arises from the listings.

My own view is that we need to eventually move to a regime of consumption taxes and totally eliminate direct taxation, as this will cause a greater multiplier effect of money in the economy and also is less of an administrative burden for the tax authorities. The argument against consumption tax is that it is a regressive tax on the poor. While this may be so, correct tax reform will lead to greater income from a more vibrant economy, and coupled with a more efficient welfare distribution method, this will outweigh the negatives of moving to an entirely consumption-based tax system.

Whatever we decide to do, we must be guided by the principle of economic stimulation, rather than the usual narrow focus on the fiscal accounts. Getting it wrong again, as we did with the recent tax packages, could have a devastating effect on the economy. Are we capable of making the needed bold decisions?

63 comments:

Anonymous said...

Good article. However, I do not agree that companies listed on the Junior Market should be given tax incentives. The primary reason should be to get capital. This is no equitable. It makes other similar companies, not listed, to be less competitive.
The reduction in the CIT rate to 15% is to make non listed more competitive. If the incentives for Junior market is be remained then, I would agree with the PSWG recommendation for the reduction in the CIT rate to 15%. The principle is for companies to reinvest the tax savings, which would lead to expansion and increase employment.

In effect what proponents of the Junior Market is saying, is that CIT should be abolished or tax on businesses. In that, as soon as they stop paying CIT they are now able to make huge profits and can now expend their businesses.
I think the country cannot afford to give tax holidays to profitable companies.

What would be the situation if all the profitable medium size companies get listed.

It is a bad policy to reward companies to seek capital, this in effect is penalizing struggling companies are not in a position to get listed

Ralston said...

Good Day Dennis
Your support for incentives to the Junior market and the tourist sector seems to contradict your original views on waivers and incentives published by the Observer on the 23 Sept 2011.There you had indicated that Govt should do away with the system of waivers and incentives ,Your article indicated as follows .( Goverment cannot continue to seek to create pivate sector jobs by giving incentives If an incentive is required to start a business or create jobs then it means the business is not competitive and does not make good economic sense.Govt stimulus should instead come from infrastructure work ),Thier is some merit to your point ,however it does not take note of the fact that we are members of a Common Market all members were required to provide fiscal incentive to thier manufactuers(See Caricom Fiscal Incentive Scheme 1973 ).Barbados St Lucia, Antigua Trinidad Guyana etc all have this fiscal incentive Jamaica instead went with discretionary waivers (A polictical choice of 70s which now haunts us) If we are to do away with these incentives then we must first remove ourselves from this Common Market so as not to put our workers and manufactuers at a disadvantage as we could no longer fairly compete. Take note also that in 1962 Singapore unemployment was at 13% A UN Survey Mission visited the country and suggested that they focus on Labour intesive industry using incentives ,This was done and resulted in the formation of a Economic Development Board and an Economic Incentive Act was passed to provide incentives to fuel this growth. A conerstone of Singapore success is the succesful use of fiscal incentives which they still use to this day. Interesting to note also that by 1973 Singapore had labour shortages Incentives are not bad policies but poorly managed and you will not get the results you want.The best way to cross a river is to follow the man that has crossed it before instead of the one that has only read about crossing it.....Selah

Ralston said...

test

Anonymous said...

Hello Dear, are you truly visiting this website daily, if so after that you will
definitely get fastidious experience.

Feel free to visit my webpage :: ideal waist to hip ratio

Anonymous said...

I don't know whether it's just me or if perhaps everybody
else encountering problems with your site. It looks like some of the text within your posts are
running off the screen. Can somebody else please comment and let me know if this is happening to them
too? This might be a problem with my internet browser because I've had this happen previously. Kudos

Here is my website: easy diets that work

Anonymous said...

An intriguing discussion is worth comment. I do believe that you ought to write more about this issue, it might not be a taboo matter but usually people don't discuss these subjects. To the next! Kind regards!!

my blog post: how to lose weight quickly

Anonymous said...

I seriously love your site.. Very nice colors &
theme. Did you build this web site yourself? Please reply back as I'm trying to create my own website and would love to know where you got this from or what the theme is named. Kudos!

Also visit my page - weight loss calculator

Anonymous said...

Wonderful blog! Do you have any helpful hints for aspiring
writers? I'm planning to start my own site soon but I'm a little lost on everything.
Would you suggest starting with a free platform like Wordpress or go for a paid option?
There are so many choices out there that I'm completely confused .. Any suggestions? Cheers!

Feel free to surf to my web blog ... filing bankruptcy in florida

Anonymous said...

If you want to obtain much from this paragraph then you have to apply these strategies to your won weblog.


Feel free to surf to my blog post ... raspberry ketone

Anonymous said...

There is certainly a lot to find out about this subject.

I like all the points you made.

my webpage - diet plans for women to lose weight fast

Anonymous said...

My brother suggested I might like this website.
He was once entirely right. This submit truly made
my day. You can not imagine just how so much time I had spent for this information!

Thank you!

My web site: bmr calculator

Anonymous said...

Hello all, here every person is sharing these familiarity, therefore it's pleasant to read this web site, and I used to visit this weblog all the time.

My web blog activity calorie calculator

Anonymous said...

Thanks in support of sharing such a good thinking, post is pleasant, thats why i have read it fully

Here is my website diets that work for women

Anonymous said...

Thank you, I have recently been looking for information approximately
this topic for a long time and yours is the greatest I have
found out so far. However, what in regards to the bottom line?
Are you certain concerning the supply?

Review my blog - bmi calculator for men

Anonymous said...

Hey very interesting blog!

Have a look at my homepage ... bmi calculator for women

Anonymous said...

An intriguing discussion is definitely worth comment.
I think that you should publish more about this subject, it might not be a taboo matter but typically people don't discuss these subjects. To the next! Many thanks!!

Feel free to surf to my website ... local directions for people

Anonymous said...

I love your blog.. very nice colors & theme. Did you create
this website yourself or did you hire someone to do it for you?
Plz answer back as I'm looking to design my own blog and would like to know where u got this from. thanks

My webpage ... buy acai ultra

Anonymous said...

First off I would like to say great blog! I had a quick question which I'd like to ask if you do not mind. I was interested to find out how you center yourself and clear your head before writing. I've had a
hard time clearing my thoughts in getting my ideas out there.
I truly do take pleasure in writing however it just seems like the first 10 to 15 minutes tend to be wasted just trying to
figure out how to begin. Any recommendations or tips?

Thanks!

Take a look at my web-site :: diets that work for women

Anonymous said...

Woah! I'm really digging the template/theme of this website. It's simple,
yet effective. A lot of times it's very difficult to get that "perfect balance" between usability and visual appearance. I must say that you've done a amazing job with this.

Additionally, the blog loads extremely fast for me on Safari.

Exceptional Blog!

Here is my web blog :: Diet that Works

Anonymous said...

If some one wishes to be updated with latest
technologies therefore he must be visit this web page and be up to date every day.


Here is my web site - best way to lose weight fast

Anonymous said...

Hi i am kavin, its my first occasion to commenting anywhere,
when i read this article i thought i could also
create comment due to this sensible post.

Here is my page - easy diets that work

Anonymous said...

Wow, this paragraph is good, my younger sister is analyzing these things, so I am going to tell her.


My website :: write my paper for me

Anonymous said...

Hello! I could have sworn I've been to this website before but after browsing through some of the post I realized it's new to me.
Nonetheless, I'm definitely happy I found it and I'll be bookmarking and checking back often!


Stop by my page: United States real estate directory

Anonymous said...

This is the right blog for anyone who wants to understand this topic.
You realize so much its almost hard to argue with you (not
that I personally would want to…HaHa). You certainly put a brand new
spin on a topic that has been written about for decades.
Great stuff, just great!

My homepage; local business directory pages

Anonymous said...

You actually make it appear really easy together with your presentation but I find
this matter to be actually something that I feel I would by no means understand.
It kind of feels too complicated and very large for me.
I'm having a look forward for your subsequent put up, I'll try to get
the grasp of it!

Visit my web page ... 165 80r15

Anonymous said...

Hi, I do believe this is an excellent site. I stumbledupon
it ;) I'm going to revisit once again since i have book marked it. Money and freedom is the best way to change, may you be rich and continue to guide others.

my blog: cartoon t-shirts pictures

Anonymous said...

Hello! Do you use Twitter? I'd like to follow you if that would be ok. I'm undoubtedly enjoying
your blog and look forward to new updates.

Here is my blog post; essay checker plagiarism

Anonymous said...

Yes! Finally someone writes about management research paper topics.



my web page; guidelines for writing a research paper

Anonymous said...

Wonderful blog! Do you have any tips for aspiring writers?
I'm planning to start my own blog soon but I'm a little lost on everything.

Would you recommend starting with a free platform like Wordpress or go
for a paid option? There are so many choices out there that I'm completely confused .. Any ideas? Kudos!

Also visit my web site :: 80cc bicycle engine kits

Anonymous said...

Nice blog here! Additionally your site rather a lot up very fast!

What host are you the usage of? Can I get your associate link to your host?
I want my web site loaded up as fast as yours lol

My weblog ... sample research paper apa format

Anonymous said...

Do you mind if I quote a couple of your posts as long as I provide credit and sources back
to your blog? My blog site is in the exact same
niche as yours and my users would definitely benefit from some of the
information you provide here. Please let me
know if this okay with you. Thanks a lot!

Look into my page research paper to buy

Anonymous said...

My spouse and I stumbled over here from a different web page
and thought I should check things out. I like
what I see so i am just following you. Look forward to exploring your
web page for a second time.

My site business local directory

Anonymous said...

Howdy outstanding blog! Does running a blog such as this take a massive
amount work? I have virtually no expertise in computer programming however I had been hoping to start
my own blog in the near future. Anyhow, should you have any
ideas or techniques for new blog owners please share.
I know this is off topic nevertheless I simply had to ask.
Thanks!

Also visit my web page 8000 btu air conditioner

Anonymous said...

Hi! I just wish to give you a huge thumbs up for the excellent information you have got right here on this post.
I will be coming back to your blog for more soon.

Feel free to visit my web page ... white pages directory ohio

Anonymous said...

It's hard to come by educated people about this topic, however, you sound like you know what you're talking about!
Thanks

Also visit my web page: local pages directory

Anonymous said...

Hello would you mind sharing which blog platform
you're using? I'm planning to start my own blog in the near future but
I'm having a difficult time making a decision between BlogEngine/Wordpress/B2evolution and Drupal. The reason I ask is because your layout seems different then most blogs and I'm looking
for something unique. P.
S Apologies for being off-topic but I had to ask!



my web page; business directories list

Anonymous said...

Excellent way of describing, and nice paragraph to obtain facts regarding my presentation topic, which i
am going to present in school.

Look at my web page ... North Carolina used computers

Anonymous said...

Please let me know if you're looking for a writer for your blog. You have some really good posts and I feel I would be a good asset. If you ever want to take some of the load off, I'd absolutely love to
write some content for your blog in exchange for a link back
to mine. Please send me an email if interested. Many thanks!


Feel free to surf to my page :: charlotte north carolina pc repair

Anonymous said...

Whoa! This blog looks exactly like my old one! It's on a entirely different subject but it has pretty much the same layout and design. Great choice of colors!

Visit my page: computer charlotte nc

Anonymous said...

Thanks , I have recently been looking for information approximately this subject for
a long time and yours is the best I have came upon till now.
But, what about the bottom line? Are you sure about the source?


my page alzheimer s disease research paper

Anonymous said...

Pretty component to content. I simply stumbled upon your blog and in
accession capital to say that I get in fact enjoyed account your blog
posts. Any way I'll be subscribing for your augment or even I achievement you get right of entry to constantly quickly.

Also visit my site movie forumz mobi

Anonymous said...

Pretty great post. I just stumbled upon your weblog
and wished to say that I have truly loved browsing your blog posts.
In any case I will be subscribing in your rss feed and I'm hoping you write again soon!

My web blog: directory businesses

Anonymous said...

My brother suggested I might like this blog. He was totally right.
This post truly made my day. You can not imagine simply how much time I had spent for this information!

Thanks!

Take a look at my webpage white pages business

Anonymous said...

It's hard to find experienced people for this topic, however, you seem like you know what you're talking about!
Thanks

Also visit my homepage ... new local business directory us

Anonymous said...

What's up, all is going fine here and ofcourse every one is sharing facts, that's really good, keep up writing.


Feel free to visit my website ... local small business listings

Anonymous said...

Pretty nice post. I just stumbled upon your weblog and wished to say that
I have really enjoyed browsing your blog posts. After all I
will be subscribing to your feed and I hope you write again
very soon!

My homepage; local small business listings

Anonymous said...

Thanks for every other informative website. Where else may
I am getting that type of information written
in such a perfect method? I have a project that I'm just now running on, and I've been on the look out for such information.


my blog :: local pages business listing

Anonymous said...

I'm amazed, I have to admit. Rarely do I encounter a blog that's both educative and amusing,
and without a doubt, you've hit the nail on the head. The problem is an issue that too few people are speaking intelligently about. I'm very happy I found this during
my search for something concerning this.

My website: local directory business

Anonymous said...

I believe this is among the so much vital info for me.
And i am satisfied studying your article. However want to observation on some general issues, The site taste is perfect, the articles is truly nice : D.

Excellent process, cheers

my web-site - local business list

Anonymous said...

If you are going for best contents like myself, simply pay
a quick visit this web page daily because it gives feature contents, thanks

Review my homepage ... business directory business

Anonymous said...

My family members all the time say that I am killing my time here at
net, except I know I am getting experience daily by reading thes fastidious content.


Here is my blog post :: USA real estate agent directories

Anonymous said...

Highly descriptive post, I enjoyed that bit. Will there be a
part 2?

my homepage - new local business directory us

Anonymous said...

What's up Dear, are you truly visiting this site on a regular basis, if so after that you will absolutely take pleasant know-how.

Check out my page ... Want to lose weight

Anonymous said...

Hello there, You have done an incredible job.

I'll certainly digg it and personally suggest to my friends. I am confident they'll be benefited from this site.


Feel free to visit my blog post buy raspberry ketone

Anonymous said...

I quite like reading a post that will make men and women think.

Also, thanks for permitting me to comment!

Here is my site Slim Helper Weight Loss Patch

Anonymous said...

What are the Laws of Attraction. As much as you wish you could
go all out on the phone forever, then ask for a date. To you,
that indicates that you are going to give you three best ways to protect against depression.
You know that you wish to attract your can t get a girlfriend back and perceive that there is too much risk involved.
By establishing common ground, you increase your sex appeal to women.


Here is my blog post ... how to get girlfriend

Anonymous said...

Slowly, things are going in his tips to attract women new
relationship. It is a crucial step, if you sit there
and simmer until all of a sudden they boil over. In everything you do.
Well, not to take away from any serious relationship.


my blog :: how to attract women

Anonymous said...

I hardly leave a response, but i did some searching
and wound up here "The importance of correct tax reform". And I actually do have a couple of questions for
you if it's allright. Is it only me or does it appear like a few of these comments come across like left by brain dead people? :-P And, if you are writing on other places, I'd like to keep up
with anything new you have to post. Could you make a list of the complete urls of all your shared
pages like your linkedin profile, Facebook page or twitter feed?


Feel free to visit my web blog: history research paper

Anonymous said...

I love reading an article that will make people think.
Also, many thanks for permitting me to comment!

Here is my web-site US real estate agent directory

Anonymous said...

Howdy! I could have sworn I've been to this website before but after reading through some of the post I realized it's new to me.
Anyways, I'm definitely glad I found it and I'll be book-marking and checking back frequently!


My web blog same sex marriage research paper ()

Anonymous said...

Do you have any video of that? I'd like to find out more details.

Here is my blog :: film chattahoochee

Unknown said...

New version terrarium tv upgraded wikidot.com/ the flick service provider issue Refer so, the app will work effectively to give Terrarium TV on PC, Android, iOS, iPhone Free good resources to enjoy flicks without obtaining any Terrarium TV APK type of errors while enjoying Terrarium TV We will Terrarium TV give the web link below after the update is released. Maintain visiting.

ronaldphillips said...

Mobdro is not readily available Mobdro on play store so we must inspect Unknown official source Resources before mounting APK Premier League, Mobdro App Download Barclays Premier.