IF the next government is serious about endeavouring to undertake tax reform, then a cogent export policy must play a major part in such an initiative says Sandals boss Gordon ‘Butch’ Stewart.

The hotel magnate who is also chairman of this newspaper speaking with Caribbean Business Report from Kingston said: “For some time now, there has been talk about radically reforming the Jamaican Tax System in order to make it more equitable, while increasing the compliance rate. However there has been little attention paid to creating a workable export policy which is aided by tax measures that encourages growth in the economy. I can distinctly remember a time when we sought to take on an ‘export or die’ approach. If we don’t, we will certainly die.”

Stewart is of the view that tax reform is not an end in itself. The way he sees it, it is an indispensable part of a broader co-ordinated policy approach that has as its goals greater incentive, security, consistency and simplicity. It also provides for fairer outcomes, greater choice and greater opportunity.

“This new reform should deliver a new tax system, one which is built on a lower tax burden and which is fairer, more internationally competitive, more effective and less complex,” said the chairman of Sandals Resorts International.

One of the conditions of Jamaica signing a Stand by Agreement with the IMF over a 27-month period for the sum of US$1.27 billion was an undertaking to implement significant tax reform. To date, this has not taken place, and Jamaica has been unable to draw down on funds from the IMF due to its failure to have quarterly reviews of its performance completed since December 2010. The IMF funds are earmarked for balance of payments financing. Addressing a Jamaicans United for Sustainable Development summit in October of this year, Dr Gene Leon, the IMF resident representative for Jamaica said: “The structural reforms that we mapped out, that we are saying needed to be done, and done within the window of opportunity, that window is closing and the reform is not taking place — or at least it’s being delayed.” In May of this year, the government tabled a Green Paper aimed at ensuring that the system is simple and efficient. A White Paper is slated for implementation next year.

The Green Paper reads: “The Government has committed to implementing tax reform in an incremental way to achieve the objectives of: simplicity, equity and broadening of the base; improved compliance; growth and competitiveness arising from policy certainty and confidence in the economy. Most importantly, the measures must meet the revenue demands of the budget while maintaining macroeconomic and social stability.”

Jamaica’s tax system remains complicated and inefficient due to, for example, multiple non-standard tax rates and the absence of a uniformed rate structure. The system is also in need of urgent reform due to generally low tax compliance levels, narrow tax bases (due mainly to various exemptions and the granting of various incentives and waivers) but relatively high tax rates, high dependence on direct taxes (especially income and payroll taxes) and based on the fact that only a few taxpayers generally bear the burden of selected taxes. There are generally no notable concessions for exports and scant attention is paid to growing the economy via exporting goods and services.

Only last week at a business leaders breakfast meeting hosted by Stewart, he said: “There is no future without earning incremental amounts of foreign exchange and we are only fooling ourselves if we think otherwise. If we are serious about fixing our fiscal deficiencies we had better start talking exports fast. Merely dividing existing revenues proportionately to each sector and doing more of the same after paying interest does absolutely nothing for the wider community.” Stewart has been most ascerbic in his criticism of the composition of the tax committee. The way he sees it, many of its members have very little experience with exports and are largely a cabal of pseudo intellectuals who have not proven successful at business. He roared: “I think what seems to be happening is a sham of intellectuals who are local traders, or financiers, or just talkers driven by ego, and who’ll do nothing but keep Jamaicans poor. I’m sure that is not the intent. But if you have major plumbing problems, you need a plumbing engineer, not a carpenter. Traders cannot design astute export policies. I’d like to hear from the committee what it is doing about export tax policy and what it’s doing that is going to drive export growth. I am willing to believe that the committee, like everyone else, is hoping for better things for Jamaica, but they need to enunciate a creative export policy that starts to address the massive shortfalls in foreign exchange earnings.” Jamaica’s total expenditure on imports during January to July 2011 was valued at US$3,680.6 million, increasing by US$772.5 million or 26.6 per cent when compared to the same period in 2010. Earnings from total exports during the 2011 review period were valued at US$968.8 million, while for the same period of 2010 total exports was valued at US$771.3 million a difference of US$197.5 million. During the first seven months of 2011 the merchandise trade deficit was US$2,711.7 million, compared to US$2,136.8 million in the same period for 2010.

During the January to July 2011 period imports from the United States of America were valued at US$1,254.5 million, compared to US$1,033 million in the 2010 period. This accounted for approximately 34.1 per cent of Jamaica’s import bill, compared to 35.5 per cent in the 2010 period. Goods valuing US$523.6 million were exported to that country during the review period. This represented 54 per cent of total export of goods. In the comparable period of 2010 Jamaica sold US$413.2 million worth of goods to the United States of America, which represented 53.6 per cent of total exports. At the end of the 2011 review period the trade deficit with this country stood at US$730.9 million, increasing form US$619.8 million in the similar period of 2010.

The growth in imports during January to July 2011 was mainly attributed to the increased expenditure on “Mineral Fuels, Et cetera”, which accounted for 40.3 per cent of goods imports This was valued at US$1,484 million, an increase of US$562.8 million or 61.1 per cent when compared to the 2010 period. This increase was largely due to higher fuel prices. “Food” was the second largest commodity group imported, accounting for 13.8 per cent and was valued at US$505.6 million. This represents an increase of US$27.2 million or 5.7 per cent when compared to the 2010 period. “Machinery and Transport Equipment” accounting for a 13.4 per cent and was valued at US$494 million of the total imports. “Chemicals” increase from US$343.3 million in 2010 to US$430.8 million in 2011 review period. This represented an increase of 25.5 per cent or US$87.5 million. “Manufactured Goods” rose by US$45.2 million pr 14 per cent to US$368.0 million. Imports of “Miscellaneous Manufactured Articles” amounted to US$249.9 million moving from US$271.9 million recorded 2010 period.

Traditional Domestic Exports for the first seven months of 2011 was valued at US$508.8 million, an increase of US$156.2 million or 44.3 per cent. “Mining and Quarrying” accounting for 80.8 per cent of earnings from total traditional exports increased by 54.4 per cent or US$144.9 million to US$411.2 million in the 2011 review period. Non-Traditional Domestic Exports rose by 12.1 per cent or US$45.2 million to US$416.9 million.

Imports from CARICOM during January to July 2011 amounted to US$674.3 million. This accounted for 18.3 per cent of the country’s total imports. Expenditure rose by 69.0 per cent or US$274.3 million, when compared to the same period in 2010. The increase in the import bill was due to higher imports of “Mineral Fuels”, et cetera” as spending rose by US$276.9 million or 99.7 per cent to US$536.6 million. “Food” as well as “Machinery & Transport Equipment” and “Misc Manufactured Articles” each recorded increases, growing to US$77.4 million, US$3.6 million and US$7.6 million respectively in the 2011 period.

Total exports to Caricom declined marginally by 0.1 per cent during the review period. Of this amount, domestic exports accounted for US$34.4 million, down from US$34.9 million in the 2010 period. The major groups exported were “Food” which grew by US$2.4 million, to US$16.8 million and “Beverages and Tobacco” which increased by 60.0 per cent to US$5.7 million. “Chemicals” grew by US$0.6 million to US$8.4 million. Exports of “Manufactured Goods” declined significantly as there was a large shipment of cement in the period January to July 2010 as oppose to January to July 2011. For the period under review Jamaica’s trade deficit with Caricom stood at US$634.5 million up from US$360.1 million in 2010 period. The trade deficit therefore widened by US$274.3 million or 76.2 per cent, primarily due to the increase in the imports of “Mineral Fuels” during the first seven Months of 2011.

Speaking with Caribbean Business Report from London, England, Jasper Biram of Surbiton Capital said: “Many will share Stewart’s sentiment but the problem Jamaica faces is that it is largely a service-based economy and not a goods producing one. If you are going to be export driven then business leaders like Stewart must encourage manufacturing and other goods producing businesses and place an emphasis on quality. For the first seven months of this year, Jamaica spent over US$3.5 billion on imports, almost a quarter of its total GDP. It earned less than a US$1 billion from exports and that picture tells you all you need to know. You can’t just talk about exports in a vacuum. Particular attention must be paid to energy costs, bureaucracy and crime. All these measures have to be enacted in concert. Just look at Panama.”