KINGSTON, Jamaica – Richard Chen, head of the tax committee and economic committee of the Private Sector Organisation of Jamaica (PSOJ) from 2006 to 2008,  yesterday said that the possibility of increasing the income tax threshold to $1.5 million turns on the government’s policy in relation to the management of key macroeconomic variables.

Chen told OBSERVER ONLINE that the GOJ’s debt obligations grow each time the dollar declines in value by one dollar and also with upward adjustments in interest rates.

“Each time the dollar depreciates by $1 you have increase in the stock of debt by J$10.3 billion. A 250 basis point or 0.25 per cent change increase in interest rates you have increases your liabilities by J$5.2 billion. The answer to funding your $1.5M threshold partly lies in managing these variables amongst others,” he stated.

Total debt stock is currently in the region of $2.1 trillion, with US$10.32 billion of the amount being external debt. 

Chen noted that the Matalon Committee report of 2004 which subsequently made several recommendations did so after considering recommendations from the lead advisors, Georgia State University and other consultants.  

He noted, “one of the main issues discussed was the tax burden on certain payee groups. In summary, it was concluded that the tax burden on these groups were uneven, that is, it was not equitable. This discussion has continued since then and has now manifested itself with the current proposal of $1.5 million threshold.” 

He said that given the mandate of the Committee was to make recommendations that were tax neutral and revenue neutral, it chose a tax free threshold on J$275,000 indexed annually.

“There were numerous options available including an option for 500,000. One was chosen based on the terms of reference. If the terms of reference were different then the choice may have been different,” Chen proposed.

Whether or not an increase of the non-taxable threshold to $1.5 million would be problematic, he said lay in the area of policy in the context of the budgetary process.

“Each Minister of Finance crafts his budget based on their objectives and limitations. Obviously different ministers will have different objectives and priorities even in the context and the limitations of IMF Agreement,” Chen noted.   

He said the main questions to be asked of the JLP policy makers included whether or not the budgetary process can accommodate this, with the answer lying in how the budget is crafted.

“The budget has many variables including interest rate and US dollars cash inflows and outflows,” he said. 

The other essential question, he said, was how such a decision would affect the current agreement with the International Monetary Fund. He stated, “I do not think it will affect the debt/GDP ratio.” He also suggested that it would not be inflationary.

The final question – of whether or not raising the tax ceiling will reduce the tax intake, he said, was of course a definite yes. However, he stated, “that reduction will be mitigated by an expected increase in consumption.”