Jamaica’s tax system must

Jamaica’s tax system must overcome its identity crisis to be efficient

A key objective of a tax system is to raise revenue to fund public expenditure. Jamaica’s tax regime seeks to do this but it has been overwhelmed for many years in servicing our ever-growing national debt.

In the first five months of the current fiscal year, April-August 2010, debt servicing – interest and principal repayments – exceeded central government’s gross revenues of all taxes, non-tax revenues and grants by J$1 billion.

So Jamaica is compelled to borrow additional monies – a further J$106 billion in the five months this year – to both service the debt and pay public sector salaries and pensions, other recurrent expenditure across all sectors, as well as capital expenditure.

An effective tax system generates sufficient revenues to enable a balanced budget be achieved over time. In managing your household budget, you know the importance of spending within your means and earning enough income to repay borrowings over time.

This basic rule in managing your own finances is equally relevant at a national level. But we have not been able to achieve this despite repeated efforts over the years to balance our books.

Our increasing national debt burden and failure to achieve meaningful economic growth over an extended period has adversely impacted our tax system’s ability to achieve this goal. The tax system does not play a passive role.

A competitive tax system can both stimulate economic growth and incentivise compliance to get everybody to pay their fair share. The current tax system has not yet realised its potential.

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