The eight most powerful business associations in Jamaica had recommended steep cuts in income tax for the poorest Jamaicans, akin to the current proposals by the Jamaica Labour Party (JLP).

The reduction in income tax was suggested as part of comprehensive tax reform which the associations — constituted as the Private Sector Working Group (PSWG) on Tax Reform — submitted to the Taxation Committee of Parliament within a month of the new People’s National Party (PNP) Government on February 15, 2012.

In its report, the group noted that a common criticism of the current tax regime was that it imposed a disproportionate share of the burden of taxation on PAYE (pay as you earn) wage earners, and in particular those in the lower income brackets.

The proposed reforms include a number of measures designed to redress this inequity while also simplifying the tax base and reducing the administrative burdens of compliance, the report signed by the heads of the eight organisations said.

Signing to the report on condition that the recommendations were accepted in their entirety were the:

• Private Sector Organisation of Jamaica (PSOJ)

• Jamaica Manufacturers’ Association (JMA)

• Jamaica Chamber of Commerce (JCC)

• Jamaica Exporters’ Association (JEA)

• Jamaica Bankers’ Association (JBA)

• Micro Small and Medium-Sized Enterprises (MSME) Alliance

• Insurance Association of Jamaica

• Jamaica Agro-processors Association

The report by the Private Sector Working Group, chaired by Joseph M Matalon, was essentially an updating of the work of the 13-member Tax Policy Review Committee appointed by the minister of finance which submitted its final report to the PNP Government of November 30, 2004.

Membership of the review committee included: Joseph M Matalon, chairman; Mark Golding, attorney-at-law and now justice minister; Velma Blake, deputy financial secretary; Dr Wesley Hughes, then director-general of the Planning Institute of Jamaica (PIOJ); Allison Peart of Ernst & Young; Lloyd Goodleigh, trade unionist and Ethlyn Norton-Coke, accountant/attorney (both now deceased).

In the lead-up to Thursday’s general election, a proposal by JLP Leader Andrew Holness that 118,000 Jamaicans earning below $1.5 million per year be exempted from income tax has sparked major controversy.

The proposal, which is part of Holness’s 10-point plan to sell the JLP to the electorate, has been described by Finance Minister Dr Peter Phillips as “unworkable” and risks derailing the economic reform programme under the International Monetary Fund (IMF).

Matalon and Golding now appear to have backtracked from their original position as contained in the Tax Committee report, now saying, like Phillips, that it could not work.

But the Private Sector Working Group was clear that income tax had to be drastically reduced.

“It is self-evident that compliant PAYE taxpayers — representing only perhaps 35 per cent to 40 per cent of the employed labour force — bear a disproportionate burden of taxation, and in particular, those taxpayers in the lower income bands,” Matalon said in a speech to the JMA on October 10, 2014.

“I believe that there are policy reforms options — along the lines of those recommended by the PSWG — that would not involve significant revenue sacrifices, but which would render the system more progressive and equitable while also providing a significant measure of relief to overburdened taxpayers in the lower-income bands,” he said, adding that the measure would have a positive economic impact.

“By providing tax relief to lower-income taxpayers with the highest propensity to consume those goods and services produced by our productive sectors, we would also provide a welcome boost to domestic demand to the benefit of the economy as a whole,” Matalon added.

“The present tax system makes provisions for the poor, but empirical data show that these actually benefit the middle class and wealthy more. What we need are more directly targeted social safety net provisions, and one of the goals of the proposed tax reforms is to yield additional resources for this,” the PSWG said.

“Given the country’s limited capacity to provide fiscal stimulus to the economy, and the fact that we have correctly eschewed wide-scale monetary policy interventions as a means of achieving macroeconomic stability, it should be apparent that one of the few policy levers left open to us is a thorough reform of the tax system aimed at creating a general tax regime that is competitive and which promotes economic growth.”

“Indeed, in its latest Country Memorandum, the World Bank suggests tax reform as a critical action to remove what they identify as one of the primary ‘binding constraints’ to economic growth in Jamaica.”

Holness is arguing that the chop in income tax would spur economic growth as people would have more to spend.