Address to the Kiwanis Club of Kingston by Debbie-Ann Gordon Crawford, Chair of the Jamaica Bar Association Revenue Committee:
Since 2013 to present, Jamaica has experienced perhaps its heartiest dosage of tax legislation in its history… To name just a few:
1. The Provisional Collection of Tax (Asset Tax) Order - Gazetted in 2013- to impose an increase in Asset Tax of up to 10 times the previous rate ($10,000.00) based on the value of the company's assets for "non-regulated" entites. Hitherto, an entity paid a maximum of ten thousand dollars $10,000 in asset tax, but now may pay up to $100,000 and there is now a proposal to increase this to $200,000. ( REVENUE RAISING MEASURE)
2. The Charities Act, 2013 - regulates charitable organisations ('charities') established for "charitable purposes", which is now statutorily defined,[i] and provides for the
registration and revocation, administration and governance of same. The Act designates the Department of Cooperatives and Friendly Society as the Charities Authority and the Companies Office of Jamaica as the Registrar of Charitable Organisations.[ii]
Hence for this Club, Registration is a prerequisite for accessing the available tax incentives under the Customs Act, the General Consumption Act, the Income Tax Act, the Property Tax Act, the Stamp Duty Act, the Transfer Tax Act.[iii] , and under the new Minimum Business Tax Order, 2014. Given the requirements for audited financial statements and fit and proper requirements for Directors, among many others, some informal do gooders without any property or the need to import, may wish to consider undertaking a cost benefit analysis to determine whether the benefits of registration outweigh the cost of compliance. (QUASI REVENUE RAISING AND ALSO INTENDED TO REGULATE AND STEM TAX LEAKAGE)
3. The General Consumption Tax (Validation and Indemnity) Act, 2013-
validates improper, unlawful or invalid collection of taxes under the General Consumption Tax Act imposed by provisional orders[iv] (from the 1st of April, 2003 to the 12th of June, 2013) and indemnifies the Government and persons acting on behalf of the government from liability.
This Act is a rather unusual creature, as it appears to validate the act of imposing, enforcing and collecting taxes over an 11-year period, arising from 169 expired Orders. One is, however, curious as to what the Court's response would be to the constitutionality of this enactment, bearing in mind that constitutionally, taxes should be levied fairly and with certainty, collected honestly and without oppression.[v] Also of interest is the Court's view on the recourse available to taxpayers, given that there is an express
provision for refund of taxes paid under an expired Order!-
4. The Fiscal Incentives (Miscellaneous Provisions) Act, 2013 - amends the Income Tax Act and repeals most of the incentive laws[vi] which facilitated discretionary waivers. The Act provides for tax incentives which are part of a non-discretionary regime, and specifies which industries will qualify for incentives, and which incentives will be retained.
(REVENUE RAISING MEASURE)
5. The Income Tax Relief (Large-Scale Projects and Pioneer Industries) Act, 2013-
It returns to the Minister, in the same breath, the power to grant incentives as he prescribes, to designated large scale projects or an economic activity qualifying as a pioneer industry. With respect to large scale projects, approvals are based on capital investments and jobs and where the business will substantially contribute to economic growth (all subjective criteria). With respect to the Pioneer Industry, the applicant must have some transformational impact.
(INCENTIVE BASED - EXCEPT WE DON'T KNOW WHO THE DRAFTERS CONTEMPLATED!)
6. The Income Tax (Amendment) Act, 2013-
Most notably, the definition of income from emoluments (a chargeable income for the purpose of imposing income tax) has been widened to include cash, benefit, or kind accruing to individuals (or members of the household) by reason of employment, including the full cost of the benefit. - ( REVENUE RAISING MEASURE)
7. The Revenue Administration (Amendment) Act, 2013-
(a) significantly enhances the powers of the Revenue enabling greater access to information on taxpayers, and freedom of information sharing on taxpayers among public bodies and public officers. This amendment substantially widens the powers of the Commissioner General to seek information in relation to an individual's tax liability, and also redefines a "taxpayer" to include a person who is liable to pay tax pursuant to a revenue law of Jamaica whether or not-
(i) The person is resident in Jamaica;
(ii) The tax liability is in question; or
(iii) In the event any payment is waived or remitted or no amount is found to be payable;
(b) is of relevance to a treaty partner in respect of an international tax agreement.[vii]
The widening of the Commissioner General's powers in relation to investigation allows him to:
i. require any person to furnish returns, including information in respect of another person (whether identified or not) who the Commissioner General deems to be of interest,[viii] and
ii. request documents in relation to international tax agreements.[ix]
The Amendments also have implications for confidentiality. The requirement to furnish documents or information pursuant to the Act will supersede the duty of confidentiality or secrecy under any relevant law;[x] however, the Legal Professional Privilege exemption is clearly preserved.[xi] (therefore any information which has the
protection of lawyer/client privilege cannot be disclosed).
There is also a requirement imposed to retain documents relevant to the determination of a person's tax liability. These documents must be kept for no less than seven years; failure to comply is punishable by a fine of a whopping $2 M.[xii] - ( REVENUE RAISING MEASURE)
8. The Tax Administration Jamaica Act, 2013 (revenue raising measure through tax administration reform by defining role and responsibilities of TAJ with greater precision and certainty which is expected to yield higher returns)
9. The Tax Collection (Amendment) Act, 2013 (The Tax Collection (Write-Off) Regulations, 2013 - allows the Minister of Finance to write-off arrears of taxes and associated penalties that are deemed uncollectable by the Commissioner General. Where the Commissioner General determines that sums are uncollectable and so informs the Minister, the Minister may by order (published in the Gazette) declare such sums to be written–off. The criteria for determining collectability contained in the Write-Off Regulations[xiii] appear to be modelled on the Canadian regulations.[xiv] It should be noted, however, that if information subsequently comes to the attention of the Commissioner General which indicates that the sum can in fact be recovered, then the debts written-off by the Minister may be pursued if new information is uncovered.[xv]
As is the case with taxpayers who fail to pay their taxes, write-offs are ultimately borne by those taxpayers who comply and pay their fair share of taxes. As such, where the Minister is considering a write-off, there ought to be an imposition of the requirement to publish this intention, and/or invite objections from the public. After all, the writing-off of taxes deemed uncollectable is a public matter and probably ought to be treated as such.
( REVENUE RAISING MEASURE)
10. The Fiscal Administration and Audit (Amendment) Act, 2014 -
11. The Provisional Collection of Tax (Minimum Business Tax) Order, 2014- the latest entrant - a new levy starting at $60,000.00 and is payable by:
i) Companies/body corporates;[xvi]
· No exemptions are made for nil return, loss making or income tax exempt entities[xvii]
ii) Individuals operating businesses with a gross revenue (i.e. statutory income, except for income from emoluments and income subject to tax at the nil rate) of at least $3M for the year of assessment.
( REVENUE RAISING MEASURE)
The question has been repeatedly asked but in different ways; Even I myself have asked an IMF staff- Who "owns" this historic "tax reform" package?. The notion of ownership is interesting because it raises the question of who has power in this "reform" process and who takes responsibility for this "reform", (so by extension we will know who to thank in the history books).
Given that almost ALL of the 2013-2014 laws are merely Revenue Raising Measures, why then do we reference them as part of the "Tax Reform" process? Is it more palatable for us taxpayers or for politicians? For clarity, even in the area of taxation, "reform" maintains its ordinary meaning that is, "to improve". Further, the new laws, like the old (though worse) are difficult to read, fraught with uncertainties and ambiguities
Having not been able to find any "country specific advice" tendered by the IMF, I am unsure whether the IMF's technical assistance to Jamaica includes advice to Jamaica on exactly "what to do". And although Jamaica remains a sovereign state with power to tax and assuming there has been no infringement of sovereignty and although the IMF Fund Facility has been "negotiated" between our Honourable Finance Minister and the IMF staff, I have deduced that but for the "Fund supported economic reform programme" Parliament would not have so hastily and recklessly sanctioned the "tax reform" package, and therefore I have elected to refer to the new taxing regime as the IMF driven "tax reform" package.
It is apparent from all of the above legislation, that as a matter of fact, the key goal/focus of this IMF tax reform package, has been to increase tax revenues, rather than "tax reform" in the true sense of achieving a more equitable, certain or simple tax system. Certainly there are those who are opposed to this type of revenue raising tax reform, as it is argued that additional revenues will simply go into leaders' pockets; that government spending is invariably inefficient, hence, cutting expenditures must be a better focus, while simultaneously pursuing simplification of existing taxes and collection of outstanding taxes.
We will leave that debate for after, since there is no time in this forum.
Some stark observations:
1. These tax reform measures have failed to take into account the specific and complex domestic context.
Compliance is low among non-PAYE taxpayers and only 5% of registered companies we are told pay direct taxes such as income tax. How does a slew of complex tax laws, without advance public education, or awareness even, aid in improving voluntary compliance, which is the mechanism for taxation in Jamaica?
2. As a young country with a fairly unsophisticated taxpayer base, should the focus not be on raising revenue through tax simplification and education for all (since presumably taxation is for all- right?)? In justifying my statement on the complexity of the tax system, I use the example of direct taxes, particularly income tax as it applies today:
· My contractor who started life as a labourer and can now undertake construction work. Recently, he established a construction company. He has secured the start up capital from an overseas resident as well as from a local investor. Through his Accountant, (impossible for him to have done it alone) he accounts for corporate tax on the company's statutory income at 25%. On his monthly take from the company of approximately $100,000 he is required to account for statutory deductions, NIS, NHT, EDUCATION TAX and if he has taken on any "hold ya's), he is to account for HEART, their PAYE and other statutory deductions. The company is also subject to a Contractor's Levy of 2% of all earnings. At the end of the year, having earned a small profit, the company is to make a dividend payment to the overseas investor but must withhold tax at a rate of 25% or a lesser rate if the recipient is in a Treaty country (again he will have to ask his Accountant to advise). He will also be required to withhold 15% of the dividend sum payable to his resident investor. The difficulty with dividend payment is that, as is often the case, the recipients have agreed a net return on their investment, so the company (or the contractor) must itself bear the tax withheld, in order to give the investors their dividend return. In addition, the company must now look at his asset value, cash, property etc and pay an Asset Tax (though not an income tax but a direct tax) by March 15 on the company's asset value. As if that was not sufficient, the company must now pay a minimum business tax by June 15 of each year, the starting figure for which is $60,000. Please also bear in mind that we are now to apply any relevant income tax rules recently introduced.
What we are doing is applying multiple taxes to the same type of income; CREATING AN EVER MORE COMPLEX TAX SYSTEM AND EVEN MORE EXPENSIVE TAX COMPLIANCE PROCESS. Did I hear that broadening the tax base is a major thrust of this "tax reform" package?
Please also bear in mind that we have not yet entered the realm of GCT, Customs Duty, Transfer Tax, Stamp Duty, Registration Fees or Property Taxes, all of which the Contractor is likely to suffer!
Taxes are by no means a simple matter and there is no simple solution; but sudden wholesale "reform" is impracticable in all respects.
As rules grow ever more complex, so does the cost of compliance by businesses and by extension: - the cost of administration and audits for tax authorities grow commensurately.
Its clear that the Jamaican authorities intend to achieve "tax reform" through increased revenue collections; not so much through education, simplification or relying on voluntary compliance, but through increased audits. We see the evidence of this in the Honourable Finance Minister's June 5th 2014 letter to Ms Christine Lagarde, wherein he advised on the next steps to strengthening tax administration. It says, among other things, that this will include:
1. Increasing the number of staff by a further 50 auditors between March 2014 and March 2015
2. Increasing the number of audits completed in the large taxpayer office by 100 percent up to 2015
3. Enacting additional legislative reform in Revenue Administration and Tax Collection to strengthen the powers of TAJ to collect outstanding arrears, including powers to seize and sell taxpayers' property... to name a few
In my view, at the core of all this, are missing links, that is, in the process of this "tax reform", we have failed to attain certain fundamentals:
The Auditor General has herself said that "An assessment of the impact of tax administrative/compliance measures over the medium-term period, should be considered and included in the FPP in light of the consistent revenue shortfall. The Ministry should explain in future, the reasons stepped up compliance actions did not lead to the expected revenue increases that were initially targeted and to clarify the measures that will be undertaken in order to overcome the difficulties in achieving the Revenue targets from stepped up compliance"
In other words, plenty talk, plenty law and plenty shortfall… consistently. Can someone consider why (or as AG says "measure the impact) before we throw down a new lump of unreadable legislation?
Further, the Canons of Tax Law dictate certain fundamental principles:
1. Tax policy should be fair. We accept that not all commentators will agree on the detail of what constitutes a fair tax, but a tax system which is considered to be fundamentally unfair will ultimately fail to command consent, support and compliance of its constituents. A tax system which is felt to be fundamentally unfair will quickly lose political support.
2. provide certainty. In virtually all circumstances the application of the tax rules
should be certain. It should not normally be necessary for anyone to resort to the Courts in order to resolve how the rules operate in relation to his or her tax affairs. Taxpayers need a safe harbour to operate effectively without the undue uncertainty over their tax liability. Certainty about tax requires:
i. legal clarity: Tax legislation should be based on statute and subject to proper
democratic scrutiny by Parliament.
ii. Simplicity: The tax rules should aim to be simple, understandable and clear in their
iii. Targeting: It should be clear to taxpayers whether or not they are liable for particular types of charges to tax.
3. provide stability. Changes to the underlying rules should be kept to a minimum
and policy shocks should both be avoided. There should be a justifiable economic and/or social basis for any change to the tax rules and this justification should be made public and the underlying policy made clear. (AS THE AG has asked for!)
4. A person's tax liability should be easy to calculate and straightforward and cheap to collect. To this end, tax policy should be practicable.
5. Within the Jamaican context, new Tax Laws must be secured by advance notice and better consultation. Sudden and unexpected changes to tax policy are harmful to businesses and to the Revenue and should be avoided unless there are exceptional reasons requiring immediate intervention. It is important that businesses have early warning of policy changes, except in cases where the tax base is at risk. Greater stability in tax policy, secured by advance notice and better consultation, must result in higher compliance rates
6. The tax system as a whole must be coherent. New provisions should complement
the existing tax system, not conflict with it. MBT a prime example! Give examples.
DO WE CARE TO?
Do we care about growth, development and competitiveness to undertake an impact analysis of our tax measures to see:
-the compliance burden on taxpayers?
-the cost of collection by the very Revenue staff we the taxpayers engage?
-the way in which new taxes are imposed, or the way in which we amend existing taxes and their effectiveness?
-whether generally taxes are fair, certain, sufficiently simple to understand and pay?
Further, moving forward, Publication of such detailed analyses alongside each tax proposal, is to my mind an imperative and will enable the taxpayers to assess their quality and alert Government to shortcomings and above all, encourage complaince.
We recognize that revenue needs are particularly severe, and that we've already entered into a "tax reform" and economic programme where there are concomitant obligations on the part of the Government; However, to encourage growth, WHILE yielding the desired tax revenues, arriving at a balance is an obligation; a must, which does not now obtain-
The burden of taxation, its increasing complexities and its associated compliance costs (for those of us who bother to comply) must be measured and an assessment done to see whether the system encourages voluntary compliance or whether it induces tax evasion!. And if the fraction of compliant taxpayers fall into financial distress due to the burden of taxation, among other now prevailing factors, how will the tax be collected anyway and the goals realized?- A pound of flesh perhaps? Would it not have defeated the journey of "tax reform" which we have embarked on? Compliance costs, now an expensive business is an ever increasing drain on valuable resources that could otherwise be available for investment. We cannot have a situation where management time is diverted to compliance rather than commercial activity.
Nonetheless, one may be pessimistic as to whether there would be any audience for this perspective when looking at the most recent public correspondence from Jamaica to Ms Lagarde, where it says, amongst other things, "the government believes that the policies described in the Memorandum of Economic and Financial Policies are adequate to achieve the programme's objectives. However, if necessary, the government stands ready to take any additional measures that may be required."
The issue remains whether as taxpayers, while ensuring that we do our part in complying, at least by accounting for that for which we are aware, whether we will join a campaign for taxpayer consultation, awareness, fairness and simplification through a true exercise in "tax reform" which does not purely address external accountability, but domestic accountability as well!
I. The Charities Act, 2013 section 3, First Schedule
II. The Charities (Designation of Charities Authority) Order, 2013
III. The Charitable Organisations (Tax Harmonization) (Miscellaneous Provisions) Act, 2013 Section 2
IV. Pursuant to the Provisional Collection of Tax Act, 1973 section 3
V. Bennion, Francis A., Kay Goodall, and Geoffrey Morris. . London: LexisNexis, 2008. Print.pp.190
VI. The Fiscal Incentives (Miscellaneous Provisions) Act, 2013 section 4 repeals: The Cement Industry (Encouragement and Control) Act, The Export Industry Encouragement Act, The Foreign Sales Corporation Act, The Hotels (Incentives) Act, The Industrial Incentives Act, The Industrial Incentives (Factory Construction) Act, The International Finance Companies (Income Tax) Relief Act, The Motion Picture Industry (Encouragement) Act, The Petroleum Refining Industry (Encouragement) Act, The Resort Cottages (Incentives) Act, and The Shipping (Incentives) Act.
VII. The Revenue Administration (Amendment) Act, 2013 section 2 (emphasis added)
VIII. The Revenue Administration (Amendment) Act, 2013 section 10
IX. The Revenue Administration (Amendment) Act, 2013 section 6 (d)
X. The Revenue Administration (Amendment) Act, 2013 section 6 (e)
XI. The Revenue Administration (Amendment) Act, 2013 section 7
XII. The Revenue Administration (Amendment) Act, 2013 section 12
XIII. The Tax Collection (Write-Off) Regulations, 2013
XIV. The Debt Write off Regulations, 1994 (Canada)
XV. The Tax Collection (Amendment) Act,2013 section 4
XVI. Incorporated or Registered under the Companies Act (including overseas companies registered under Part 10), the Building Societies Act, the Friendly Societies Act, or the Industrial and Provident Societies Act.XVII. Provisional Collection of Tax (Minimum Business Tax) Orderb, 2014 section 7(4)