Editorial | Welcome tax recalibration

The government’s decision to recalibrate two of the critical tax measures recently announced by Finance Minister Fayval Williams goes to the credit of the administration and is welcomed by this newspaper.

The adjustments suggest that the government is prepared to listen at least in this case, respond to the credible and logical arguments. However, the development raises questions and concerns about the the level, and quality, of the consultations in which the government engaged with key stakeholders prior to the announcement of the taxes, as was recommended by Peter Moses’ committee after the big petrol prices protests of 1999.

To be fair to Ms Williams, she got an important element of the spirit of the Moses recommendations right; her proposed J$29.4-billion tax package was announced well ahead, rather than at the close of the annual Budget debate, and several weeks before the start of the new financial year on April 1.

That allowed legislators and other stakeholders with concerns to raise them before the fiscal year-year kicked in, providing the government adequate space and time to make these adjustments to the sugary drinks and environmental levy taxes, rather than being in a mad and messy scramble later on.

“In keeping with this administration’s leadership style, we listened,” Minister Williams said in Parliament on Tuesday.

In the original tax measures announced by the finance minister six weeks ago, the government intended to introduce a special consumption tax (SCT) of two Jamaican cents (J$0.2) on each millilitre of non-alcoholic sweetened beverages manufactured or imported in the island, whether the sweetener was added sugar, “caloric sweeteners” or “non-nutritive sweeteners”. This measure was expected to raise J$10.1 billion or 34 per cent of the total tax package, but nearly 56 per cent if the renewal, for another five years, J$11.4 billion annual extraction from the National Housing Trust (NHT) is excluded.

Additionally, the 0.5 per cent of the value of imported and domestically manufactured goods paid as the environmental production levy (EPL) was to be hiked to 0.8 per cent. Further, the 25-per-cent ‘adjustment’ or rebate previously enjoyed by domestic producers would be removed; they would have to pay the full 0.8 per cent.

Although the sugary drinks tax accounted for a major chunk of the new revenues it insisted were necessary to close fiscal gaps after the destruction caused by Hurricane Melissa last October, the government also cast the measure as part of its initiative against sugar consumption and the growth of non-communicable diseases (NCDs), such as hypertension and diabetes. NCDs consume an increasing portion of the government’s health budget.

While many people, including this newspaper, welcomed the sweet drinks tax as a first step, the flat rate SCT widely held by healthcare advocates and the political opposition, to substantially affect consumption patterns. Nor did it provide an incentive to manufacturers to reduce the sugar content of their products.

TIERED TAX

Like The Gleaner, the preference, including by the health ministry, was a tiered tax, with the SCT based on the sugar content of the drink: lower sugar content equating to lower levy rates.

In her adjustment, Minister Williams hasn’t quite gone that route, not yet. Instead, the SCT will be imposed at a rate of 22 Jamaican cents (J$0.22) per gram of sugar in drinks with additional sugar.

“In the course of the year, we will continue the working group (the health ministry, finance ministry, domestic drink manufacturers) to work towards the tiered system,” Ms Williams said.

Regarding the environmental levy, domestic manufacturers had argued that the adjustment as initially proposed, would leave them at a competitive disadvantage against importers. While importers paid the Environmental Protection Levy (EPL) on the Cost, Insurance, and Freight (CIF) value of their imports, local producers paid on the sale price of their product, which included a raft of costs, relating to manufacture and domestic distribution, not faced by importers. In that circumstance, the 25-per-cent adjustment/rebate made sense.

The government has accepted the competitiveness argument and will keep the differential. However, it also maintains the upward adjustment of the levy to 0.8 per cent. So, domestic manufacturers will pay from a higher base.

The local private sector may still be dissatisfied with Minister Williams’ compromise. Nonetheless, the development demonstrates the value of discussion and engagement and early signalling around taxes, as was suggested by the Moses Committee nearly three decades ago.

Jamaica has grown better on these matters, evidenced by the fuller discussion of the annual budget by Parliament’s Standing Finance Committee, post the gas riot. Minister Williams further advanced the process by announcing the taxes early. The budget/fiscal reviews by the Independent Fiscal Commission adds accountability to the arrangements.

However, the IFC deals with data and targets in the context of government policy, not so much with the political economy or the social environment. Minister Williams can advance further ground on the matter.