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Financial News

Feb 2009 Financial News

General Consumption Tax (GCT) targeted - Government of Jamaica mulls tax increase

Feb 12, 2009

CONSUMERS COULD be hit with a sharp increase in General Consumption Tax (GCT) in April.

An informed source told The Gleaner yesterday that the Government was considering a proposal to hike GCT by 4.5 per cent, moving the tax to 21 per cent. The current rate of GCT is 16.5 per cent.

To cushion the effect of the proposed consumption tax increase, the Government is said to be contemplating a reduction in the rate of income tax.

Yesterday, a senior government source said he could not confirm or deny the proposed plans, but told The Gleaner that Cabinet would discuss a number of recommendations at its upcoming retreat later this month.

No comments

Efforts to reach Minister of Finance and the Public Service Audley Shaw, or Minister without Portfolio Don Wehby for comment were unsuccessful, as the portfolio minister was said to be engaged in meetings while his colleague's phone rang without an answer.

As the Bruce Golding administration prepares to craft one of the most testing budgets in decades, there are plans to impose a gas tax, the proceeds of which would maintain the nation's roads.

Dwight Nelson, minister without portfolio in the finance ministry, told The Gleaner yesterday that the administration had not yet taken a decision on the proposed gas tax.

He said deliberations on the proposal would take place at the Cabinet retreat.

National Works Agency CEO Milton Hodelin last month told members of the Public Administration and Appropria-tions Committee of Parliament that the proposed tax on petroleum could be in excess of $2 per litre.

Nearly 10 years ago the People's National Party administration was forced to backtrack on a decision to introduce a gas tax, after three days of massive riots against the measure. During the demonstrations chaos gripped sections of St James, St Catherine and the Corporate Area.

Motorists might not be spared in the upcoming tax package. Transport ministry officials had revealed at the parliamentary committee meeting that an increase in motor vehicle licences was also being reviewed.

Meanwhile, the Government moved quickly yesterday to quell fears of a wage freeze in the public sector after a fire storm was sparked by comments made by Nelson on a radio programme.

Nelson, who on Tuesday said such an option had not been ruled out, was quick to make it clear that no decision had been made to freeze wages.

"I want to dispel any perception that has been sown that this Government has decided to freeze wages come March," Nelson said at yesterday's post-Cabinet press briefing at Jamaica House, St Andrew.

He added: "There is nothing morally wrong with a wage freeze if the situation so demands. The fact of the matter is that no such decision has been made and all options will be examined by the Government."

Communicated to unions

According to Nelson, the global economic crisis was providing a major challenge to the Govern-ment's fiscal programme, and this was communicated to the trade unions during a meeting of the monitoring committee of the public sector Memorandum of Under-standing MOU on Tuesday.

Nelson said the Government made it clear to the unions that any response to these fiscal challenges would involve a mix of measures aimed at the public sector which, for this year, will have a wage bill of $111 billion.

Discussions first

However, he argued that any decision would be made only after extensive discussions with the public sector workers and their unions.

Danny Roberts, vice-president of the Jamaica Confederation of Trade Unions, said in a release yesterday that statements by the minister, indicating that there might be job cuts, were irresponsible.

In addition to not ruling out a future wage freeze, Nelson has listed other options for Government as cutting the number of workers in the public sector; merging or closing some state entities; and reducing the level of waste in the public sector.

Nelson is slated to meet with unions representing public sector workers next Tuesday, with the financial decisions expected to be made by the Cabinet when it meets in its annual budget retreat from February 20 to 22.

Some items affected by the J$ exchange rate with the US$:

✓ All utility bills

✓ National debt

✓ All locally manufactured goods

✓ Highway toll

✓ United States visas and visa application

✓ Most food items

✓ Fuel oil/petrol

✓ Rent

From where I sit the Government has no choice. I would be surprised though. I hear them talking about equalising them. They are trying to make GCT and corporate income tax be the same level. People are also saying why don't you move it (GCT) up to 25 per cent and then eliminate income tax. But they are going to resist that, because that is where they get the bulk of their money on a monthly basis.

Items affected by GCT

✓All manufactured goods

✓ Hotel services



✓ Most food items (excepting some basic foods)

✓ Telephone and Internet services (currently attract 20% GCT)

Putting up the GCT from where it is will not make sense. All it does is try to protect the revenue, but if you look at it, it doesn't protect the revenue at all, because people are not going to spend more because they don't have the money. Reduce income tax to 15 per cent and allow the GCT to stay where it is.

If you increase GCT and roll back income tax, that would be all right because that was the purpose of GCT to begin with - to move some of the tax burden form PAYE into consumption and you get everybody in that net. So if that is what the intent is - to go after consumption - then the measure makes sense, or it certainly makes better sense than if you were to just view [a GCT increase] in isolation. Let's see how it plays out.

Thursday February 12, 2009
Jamaica Gleaner