Finance minister, Audley Shaw, kept us all in suspense yesterday as he dangled the electoral carrot of tax relief in front of our mouths. He knew that all people wanted to hear about was the ‘1.5’, the new shorthand for an election campaign promise to raise tax thresholds. When he eventually spilled the beans, it was an interesting dish.

He offered an across-the-board income increase in PAYE income tax threshold to $1,000,272, effective from July 1, 2016. That would cost $12.5 billion this fiscal year. He kept the promise to raise the tax threshold to $1.5 million, but it would be for all on PAYE, and would be delayed further to April 1, 2017. His catch phrase was “Phase it in!”

That was dessert, and it may be sweet for some: the increased threshold means that additional $8,489 per month for those on PAYE, and those ‘few’ who will benefit number 251,000. But, it has to be paid for by many more, i.e. all of us. 

So, Mr. Shaw also announced new revenue measures to raise $13.7 billion to pay for the tax relief and help fund the $580 billion budget:

  • Higher personal income tax on salaries over $6 million per year from 25 per cent to 30 per cent, from July 1, 2016
  • Increase in Special Consumption Tax on petrol by $7 per litre, from May 13, 2016 (expected revenue yield $6.5 billion)
  • Introduction of Special Consumption Tax on LNG and revision of heavy fuel oil regime, from May 13, 2016 (this will increase electricity bills as JPS did not pay tax on heavy fuel oil) [expected revenue yield $1.4 billion]
  • Increase in Special Consumption Tax on cigarettes from $12 per stick to $14 per stick, from May 13, 2016 (expected revenue yield $0.6 billion)
  • Increase in departure tax from US$14 to US$35, from June 1, 2016. (This tax will now be denoted in US dollars.) [expected revenue yield $5.3 billion]

The PAYE measures will mean losing revenue of $12.5 billion, but the offsetting taxes are expected to bring in $13.7 billion, so a net contribution to the budget of about $1.3 billion is expected overall from the first phase of measures.

See the table provided by the Ministry of Finance (@MOFPJA) on Twitter, yesterday: 


So, while those eligible for relief will have to wait a couple of months to start seeing the first benefit, they will begin to pay for it from today. That may not go down well with that group, as it may seem like giving with one hand and taking away with the other. Those who won’t get any direct benefit will feel even more aggrieved at that news.

The expected revenue will come largely from the travelling public, both motorists and those who take public transport. The higher fuel tax is likely to ripple through to costs on other goods and services. While some see the shift to consumption taxes as a good move, that’s not wholly clear to me. 

Although Mr. Shaw was touting the tax relief as growth-inducing–as some people have more to spend–that is not a clear outcome from the whole package, especially if people are forced to dip into their pockets to cover the higher costs. Whether that leads to widespread resentment amongst people we will have to wait and see.

Those Jamaicans who fly may feel hard the pinch of higher departure tax and possibly seek to adjust travel or other spending. Remember, many informal traders must travel abroad to buy their goods. Foreign tourists may feel as Jamaicans will.  Will this hurt our tourism? 

The realization of the downside will be immediate; the gains are not yet there for some and will never be for most. 

That part may bother a lot of people. But, so it is with various forms of tax relief. Those who are not on PAYE will now know that they will get nothing extra. Mr. Shaw’s suggesting that beneficiaries pay gardeners and helpers more may get a cut-eye glance. 

 

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