Tax Reform is long overdue in Jamaica. The last major rationalisation of the Jamaican tax system occurred between the late 1980s and early 1990s when the General Consumption Tax (GCT) was introduced. Today, the GCT is considered one of our more successful taxes, with a compliance rate of approximately 60 per cent.

Tax reform will undoubtedly be an essential element of Jamaica's national development strategy. The goal of reform is to ensure that Jamaica has a tax system that is simple, fair and competitive. It should promote economic growth and act as a vehicle for development and it should be efficiently administered.

THE JAMAICAN TAX SYSTEM

In preparing the budget for financial year 2008/09, the ministry of finance engaged in an extensive review of proposed tax reform measures, analysing several benchmark studies, including studies by the Matalon Committee; Professor Bahl of Georgia State University; a competitiveness study sponsored by the Inter-American Development Bank (IDB); an International Monetary Fund (IMF) report on enhancing tax administration; and a study by the Private Sector Organisation of Jamaica, which was presented at the National Planning Summit held in 2007.

A 2007 study by the IDB estimates that 40 per cent of economic activity is unregistered and untaxed and that tax exemptions and incentives have eroded half of the tax base. The same study estimates that one per cent of corporations pay 71 per cent of Corporate Income Tax collected and one per cent of registered entities accounts for 60 per cent of PAYE collected.

Moreover, according to the latest Doing Business report on Paying Taxes, Jamaica ranks ninth on the list of countries where it is most difficult to pay one's taxes due to the number of different tax types, payment dates and tax rates. I also agree that it is inequitable that the PAYE taxpayers continue to bear the brunt of the tax burden.

BENEFITS OF TAX REFORM

These statements reinforce the sentiments of most Jamaicans that the current tax regime is burdensome, complex and inequitable. Hence, the need for reform is great and also urgent.

There are a number of benefits to be derived from comprehensive tax reform. A more simplified system will encourage local investment and formal business activity while also making Jamaica a more attractive destination for foreign direct investment. Voluntary tax compliance would improve because it would be easier to pay one's taxes, and compliance would be easier to enforce with fewer special cases. Together, these factors would lead to increased revenue and, therefore, improved central government balances.

The spin-off effects of this would include lower levels of public debt (which now stands at just over $1 trillion) and more fiscal space to provide critical social services.

In order to promote greater compliance and broaden the tax base, lowering the proportion of unregistered economic activity from 40 per cent, we are seeking to strengthen the institutional capacity of tax administration. This is important because having a broader tax base will allow us more room to lower rates.

One of the largest components of the reform programme will be to leverage information technology so that tax administration can more effectively carry out its mandate. This is necessary if we want to offer 21st century services and service delivery to our taxpayers.

Among our IT initiatives, we have acquired new audit software, which 25 auditors across tax Administration have been trained to use. This was done in collaboration with the Caribbean Regional Technical Assistance Centre, the technical assistance arm of the IMF.

To make paying one's taxes easier, we have expanded the e-payment options and started e-filing with GCT and Special Consumption Tax. We are also pursuing a seamless interface between Customs and Tax Administration.

BLUEPRINT FOR REFORM AND TAX INCENTIVES

Other aspects of the tax regime, namely issues of tax policy and rate revision, are being reviewed and a final blueprint of reform measures will be finalised in coming weeks in preparation for the 2009/2010 Budget. Without a clear blueprint for the reform agenda, we risk having reform measures being implemented in an uncoordinated fashion in response to short-term needs, as opposed to a manner consistent with our long-term development goals.

One of the tasks ahead of us will be a full examination and rationalisation of the various tax incentives in place. Since the 1950s, Jamaica has used tax incentives as a tool to encourage investment and stimulate growth. While this approach helped to promote investment in the 1950s and 1960s, over time, there has been an accumulation of incentive schemes, which we have used to compensate for shortcomings in the system. Instead, we should be looking at the fundamentals of the system.

Going forward, we must have a comprehensive understanding of the existing incentives, quantify their costs and quantify their macroeconomic impact including revenue, public debt, investment and growth. This will allow for a clearer definition of cost-effective policies.

In addition to a well-defined blueprint, the success of our tax reform agenda will depend on political will and consensus and a collaborative approach between the public and private sector.

Senator Don Wehby is minister without portfolio in the ministry of finance and the public service. Feedback maybe sent to columns@gleanerjm.com