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As I have indicated in discussing the expenditure budget, this is an extremely tight year. There is not one Ministry or Department which will have received the level of support which it would consider acceptable. Nonetheless, there needs to be general recognition that expenditure cannot be expanded without a corresponding assurance of the flow of revenues to finance it. In this regard, a great deal of emphasis has been placed on increasing revenue collection by expanding the tax net. The expansion of the tax net takes two forms. The first is to ensure that those already officially registered pay their fair share. There are innumerable areas where loopholes exist and hence, there has been a sustained effort to close such loopholes in order to ensure that the burden in terms of taxation is not borne unequally by the PAYE employee, who has no option but to pay his/her fair share. An example of this improvement in burden sharing is reflected in the collection, at source, of tax on interest. For years persons who earned significant interest income were able to avoid the payment of tax although this was known to be legally due and payable. This tax on interest now accounts for a significant percentage of revenues and has contributed in no small way to "leveling the playing field". In the last fiscal year this tax was $9.5 billion, or 11% of total tax revenue. Before this tax was taken at source, it accounted for only 4.6% of the total revenue in 1998/99 and represented to a large extent tax on interest earned by s mall savers in deposit-taking institutions. In the last several years, this improvement in tax compliant has been significant and year-to-year the revenue inflows, excluding the impact of new measures have increased significantly. For example, in the last fiscal year 2000/01 the preliminary data reveal that revenues increased by 14.6% over the previous fiscal year 1999/00. There is yet another category of potential taxpayers who are presently not contributing their fair share. I speak of persons who, for want of a more appropriate phrase, we consider part of the "informal" economy. In a sense, this is an unfortunate terminology as persons involved in this sector are often gainfully employed producing goods and services needed by other sectors of the economy. This is not a unique Jamaican phenomenon, as it is a growing characteristic of many countries, developing and developed, that members of the labour-force are involved in economic activities not captured in the formal data sets. There are many reasons for their unwillingness to be incorporated – the most obvious is to minimize their tax payments. Whilst at first blush this may seem harmless, the reality is that there are significant negative repercussions. For one it simply means that these persons who are consuming services, health, education, etc like taxpayers, are not contributing their fair share. However, of equal importance is that if such persons are involved in business, particularly trading, the fact that they do not pay taxes translates in an unfair advantage compared to law- abiding citizens who are paying their taxes. The end result is that their continued activity could lead to the collapse of many formal businesses thus further undermining the revenue base of the country. Our response is twofold. In the first place, the legislation, which has been passed reforming the tax system plus the computerization, which is ongoing, now allows the authorities to more closely monitor the activities of those who should be on the tax roll but are not. For example, if Customs has identified an importer who has tried to avoid paying duties, the logical next step is to examine his records of payments in terms of income tax. Our new computing system facilitates tracing down or such persons. The obvious advantages of the linkages between formerly separate tax departments should be clear. However, what I wish to state today is that the Administration, whilst wishing to ensure through all legal means, that people pay their fair share, does also recognize that there are others who, for whatever reason, started business outside of the tax net, did relatively well without formalizing operations and now, although desirous of regularizing their activities, are scared to do so because they fear the cost particularly if there is a huge retroactive payment to be made. My message to that group is twofold. The first is that it is counter-productive to delay becoming part of the formal process as greater efficiency in the system makes it increasingly difficult to stay outside the net. The second part of my message is that the authorities recognize the reason for your reluctance and within that context, even whilst accepting the difficulty of your meeting all past obligations at once, are willing to work with you on a case-by-case basis in bringing you into the formal system. I would like to announce that the tax Tsar, Mr Nicholas, has established a special unit to deal with such individuals. Through a case-by-case examination it will be possible for persons who have been outside of the formal system to enter the formal economy. The obvious question is why would it benefit any such individual who presently enjoys an advantage? The first answer is that as I have indicated before, it is only a matter of time before such operations are pinpointed. However, the better answer is that, only formal operations will be able to benefit from accessing special support from various Government institutions, including the Development Banks hence, it will be possible for entrepreneurs with initiative to do better operating formally, than to stay outside of the net and to be constantly dodging the tax officials. || Previous | Table of Contents | Next ||
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