The Journey to Prospertity = Taxes
Once again a new budget, and a new package of taxes. What is clear is that the administration has set its agenda towards moving towards consumption taxes as opposed to income taxes, but as an economist who knows a little bit about Public Finance, the question is not are the taxes too much, but the question is who bears the burden of the tax.
The tax package proposed over a year ago is still on target as at April 1, 2017; the New Income tax threshold will be 1.5 million dollars, liberating more than half the labor force from paying income taxes. For all intents and purposes this a good move for many workers who some will finally see the up to $18000*.
I am extremely annoyed when I hear the argument among educated communities about everyone being promised $18000, that was a gross misinterpretation. In any sphere, if I say something one way and you interpret it a different way whose problem is that? Mine or Yours? ....Certainly not mine. Last year I was asked repeatedly, can it work, I said it could but only if they found a feasible way to finance it and so far the Government has figured out a way to do that.
But a breakdown of this year's tax package highlights that the Government is only running out of options in choosing things to tax.
The initial proposal was as follows
* Increase in Specific Special Consumption Tax (SCT) on fuels totaling $7.4 billion;
* General Consumption Tax (GCT) at 16.5 percent to group health insurance, to bring in $1.8 billion;
* Reducing the threshold for the application of GCT on the consumption of residential electricity from 350 kWh (the unit of energy used) to 150 kWh per month to bring in $1.4 billion;
* Increase excise on pure alcohol, from $1,120 per liter to $1,230 per liter, to earn $403 million;
* Increased motor vehicle license fees by 20 percent to receive $464 million; and
* Reimposed withholding tax on general insurance premiums paid by Jamaican residents to non-residents at a rate of 15 percent to earn $990 million.
It sums up to a tax on Gas, Motor vehicles, smoking, drinking, insurance and power (residential).
Back to my question, who bears the burden of the tax? The simple answer is the middle class.
The more detailed answer is the persons who are on the threshold of being working class poor/ comfortable.
The increase in MV licensing is fair,
The tax on health insurance sends mixed messages.
The tax on alcohol can be justified due to the inelasticity of demand
The tax on electricity usage for resident consumers is justifiable if and only if the government tried to keep the exchange rate as stable as possible since customers not only face cost based on usage but also cost associated with foreign exchange variation.
My summation is, however, we'll just have to wait and see if Jamaica can continue to target low inflation and a lower but stable exchange rate.
The tax package proposed over a year ago is still on target as at April 1, 2017; the New Income tax threshold will be 1.5 million dollars, liberating more than half the labor force from paying income taxes. For all intents and purposes this a good move for many workers who some will finally see the up to $18000*.
I am extremely annoyed when I hear the argument among educated communities about everyone being promised $18000, that was a gross misinterpretation. In any sphere, if I say something one way and you interpret it a different way whose problem is that? Mine or Yours? ....Certainly not mine. Last year I was asked repeatedly, can it work, I said it could but only if they found a feasible way to finance it and so far the Government has figured out a way to do that.
But a breakdown of this year's tax package highlights that the Government is only running out of options in choosing things to tax.
The initial proposal was as follows
* Increase in Specific Special Consumption Tax (SCT) on fuels totaling $7.4 billion;
* General Consumption Tax (GCT) at 16.5 percent to group health insurance, to bring in $1.8 billion;
* Reducing the threshold for the application of GCT on the consumption of residential electricity from 350 kWh (the unit of energy used) to 150 kWh per month to bring in $1.4 billion;
* Increase excise on pure alcohol, from $1,120 per liter to $1,230 per liter, to earn $403 million;
* Increased motor vehicle license fees by 20 percent to receive $464 million; and
* Reimposed withholding tax on general insurance premiums paid by Jamaican residents to non-residents at a rate of 15 percent to earn $990 million.
It sums up to a tax on Gas, Motor vehicles, smoking, drinking, insurance and power (residential).
Back to my question, who bears the burden of the tax? The simple answer is the middle class.
The more detailed answer is the persons who are on the threshold of being working class poor/ comfortable.
The increase in MV licensing is fair,
The tax on health insurance sends mixed messages.
The tax on alcohol can be justified due to the inelasticity of demand
The tax on electricity usage for resident consumers is justifiable if and only if the government tried to keep the exchange rate as stable as possible since customers not only face cost based on usage but also cost associated with foreign exchange variation.
My summation is, however, we'll just have to wait and see if Jamaica can continue to target low inflation and a lower but stable exchange rate.
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