INTRODUCTION:
Ladies and Gentlemen,
This topic “Options and Innovations for
optimizing revenue from tax on consumption,” is of
great importance to Jamaica as the revenue target
for fiscal year 2006/2007 is to collect net revenue
of approximately $195B. To this end, Jamaica as well
as other Caribbean Islands must find innovative ways
in achieving their respective revenue targets.
Revenue inflows from consumption will play a
major role in achieving the revenue target for this
year. This tax, which is the General Consumption
Tax, accounts for approximately 39% of the total
revenue collections.
Most of you are aware that France is credited as
the first country to implement Value Added Tax. This
was in 1955; and today over one hundred and fifty
(150) countries have implemented some form of VAT.
Value added tax was introduced in Jamaica on 22nd
October 1991, as General Consumption Tax (GCT). GCT
simplified and modernized the Jamaican indirect tax
system by replacing eight (8) different sales and
consumption taxes as under:
1. Excise Duty
2. CARICOM Duty
3. Retail Sales
Tax
4. Telephone Service Tax
5. Entertainment Duty
6. Hotel Accommodation Tax
7. Consumption Duty
–other than for products covered under a Special
Consumption Tax (SCT)
8. Additional Stamp Duty
levied on importation of goods – except for specific
“protected” goods
HOW DOES THE TAX WORK?
• Tax is charged on the supply of goods and
services.
• It is charged at each stage of the production
and distribution chain by businesses and other
persons conducting continuous or “taxable” activity.
• Most businesses do not incur the cost of the
tax; they simply ensure that it is charged when they
make a taxable supply and claim credit for tax paid
on their business inputs.
• Specified supplies are charged at the rate of
0% or are exempt from the tax. Zero-rated businesses
can claim a credit for the tax paid on inputs, but
exempt businesses cannot.
• The cost of the tax is borne by businesses,
which make exempt supplies, and by unregistered end
consumers, as both parties pay tax when acquiring
commodities, but are unable to claim a VAT credit.
INCOME TAX vs. VAT
Income Tax, taxes profits accruing to the
business; while VAT taxes spending, or amounts going
out of the business.
Income tax is classified, as a direct tax while
VAT is an indirect tax or consumption tax.
STRATEGIC OVERVIEW
As Tax Administrators we should be conscious of
the benefits of good customer service, the education
of both staff and customers and also the effects of
enforcement activities. All these must be
efficiently and effectively managed and where
possible, information technology must be utilized to
optimize revenue in-flows. Jamaica Tax
Administration’s primary objective is to collect the
revenue that is due; nothing more and nothing less.
The strategies employed to accomplish this objective
are:
• Improve compliance through better service
delivery, education and enforcement actions
• Improve information and communication
technology processes
• Improve the organization and management of Tax
Administration
We have developed a tax compliance model with the
focus on the behaviours or attitudes of taxpayers
and the responses by our tax administrators. Our
approach is to make it easier to pay taxes where
taxpayers are consistently compliant. Where
taxpayers are willing to comply but are experiencing
difficulties, the policy is to assist them in
complying. For those who do not want to comply but
would be willing if they are urged to do so,
auditing and other enforcement actions will be
instituted. The full force of the law however, would
be applied to those who blatantly refuse to comply.
STRATEGIC OVERVIEW
The following options and innovations emerging
from our strategic directions outlined have been
implemented or are being considered for
implementation to optimize revenue inflows in
general, but specifically from consumption.
OPTIONS AND INNOVATIONS
SERVICE
1. We have increased the VAT standard rate and
are discussing the benefits of a reduction in the
Income Tax rate to attract and encourage
international businesses. This can have the effect
of discouraging under-reporting of profits or tax
avoidance schemes. There is however a limit to which
VAT can be increased to make economic sense. With a
reduction in the Income Tax Rate and the stimulation
of investment, more employment can be generated,
resulting in more disposable income available for
consumption.
As the Value-Added Tax affects a greater majority
of persons than Income Tax, it is considered to be
more equitable.
Jamaica’s GCT rate is now 16.5% up from 15%,
while the Income Tax threshold is $193,440 since
January 2006 and will again increase to $275,000 on
Jan 1, 2007.These tax free allowances will boost
consumption and consequently revenue inflows
2. To make it easier and less costly for
administration and for taxpayers to comply, a single
VAT rate is desirable. This also reduces
discrimination in the market place.
The standard rate in Jamaica is 16.5% (effective
May 1, 2005). The exceptions are 20% charged on
phone calls, 8.25% on tourism revenue and varying
rates on motor vehicles depending on the engine
capacity.
3. It is important to reduce the number of
zero-rated goods and services as the input tax is
refundable but the revenue receives no output tax.
We have significantly reduced the list of zero-rated
goods as this proved counter productive and costly
to administer.
4. Depending on the level of compliance, it may
be necessary to consider an amnesty programme for a
specified time to encourage potential taxpayers to
register without the imposition of punitive actions.
While compliance and revenue inflows usually
increase, the amnesty programme has to be carefully
managed to minimize ill-will by compliant taxpayers,
who may feel benefits accrue to delinquent persons.
5. For taxpayers who wish to formalize their
operations by being tax compliant, revenue
authorities should encourage a voluntary disclosure
programme without the imposition of penalty. The
operations of the programme must be made clear to
those who wish to comply so that they can reasonably
predict the course of action the tax administrators
will employ upon such voluntary disclosure. We
accommodate registered taxpayers who inadvertently
understate their tax liabilities to make amendments,
without imposing penalties and also persons who
should be registered are allowed to do so.
6. Tax authorities should make voluntary
compliance an easy and low cost experience for
taxpayers. In order to facilitate our customers and
to collect the revenue, Jamaica provides different
information channels; alternative payment options
such as electronic payment of tax; install drop
boxes at Collectorates to facilitate quick cheque
payments and Returns filing; assign customer service
staff in banking hall to attend to customers who
require help during peak periods; decentralize
operations by allowing filing of Returns at any
Collectorate. We are awaiting the enactment of
legislation to introduce electronic filing of Tax
Returns.
7. For the continued provision of services to our
customers, we have drafted a bill, which is
currently under discussion for the outsourcing of
certain collection functions to increase the options
available to make payments.
EDUCATION
8. In order to increase the level of voluntary
compliance there should be an aggressive taxpayer
education programme. We do not have a positive tax
culture and many persons are not conversant with the
requirements of the tax laws and as a result, the
compliance rate is at an unacceptable level. A major
thrust of Jamaica’s Tax Administration Programme is
education. This is done through publications;
regular interaction with accountants to up-date them
on legislative changes, interpretations and rulings;
information on website; toll-free help line
facility; workshops, seminars and Schools’ Tax
Education Programme (STEP); marketing and
expositions.
9. It is important to isolate delinquent
taxpayers and conduct seminars to educate them
particularly, where the tax potential is greatest.
In this regard Jamaica has targeted various interest
groups through strategic partnerships.
10. Tax authorities must conduct regular meetings
with stakeholders to obtain feedback on any
programme implemented to allow for continuous
improvement and possibly the strengthening of
legislations. The input of interest groups is
encouraged through strategic partnership in the
implementation of programmes. This also includes the
encouragement of staff to recommend amendments to
the tax laws to plug loopholes.
ENFORCEMENT
11. To optimize revenue inflows, tax authorities
must develop and maintain a strong audit and
investigations team to conduct enforcement
activities and to support voluntary compliance.
Taxpayers must be made aware that they can be
audited at anytime with the appropriate tax
adjustments and penalties applied for under-stating
their tax liabilities. We try to maintain audit
coverage of an amount not exceeding 5% of our
taxpayer population, but this is also supported by
investigations and court actions when breaches are
detected.
12. The intelligence gathering capabilities must
be strengthened to identify persons who are liable
to be registered for VAT. Jamaica has used street
surveys to gather information and has also relied on
the linkages with other revenue departments to
identify businesses, which are liable to tax. This
is facilitated through computerization and the use
of third party information.
13. In addition to the soft approaches to
encourage compliance, tough measures must be
introduced to force repeated non-compliant taxpayers
to comply with the requirements of the law. Where
the punitive sections are weak, strengthening of the
offence provisions must be undertaken. Legislative
changes for us are being considered to make
penalties more punitive and to encourage greater
compliance. Litigation actions have been taken to
recover consumption tax in arrears and their names
have been published in the media to have a deterrent
effect. This has contributed to greater inflows in
revenue from consumption. Where taxpayers collect
the VAT and refuse to pay over, prosecution actions
are being considered for cheating on the public
revenue.
INFORMATION & TECHNOLOGY
14. To support compliance, it is important to
implement an effective and reliable computerized
system to aid in risk management and the
classification and selection of taxpayers for
auditing purposes and also to maintain accurate
taxpayer accounts.
A classification module is being developed in
Jamaica’s Integrated Computerized Tax Administration
System (ICTAS) to be used to select cases for audit
based on certain variables, such as sales turnover,
net profit margin, industry averages, business
complexity, aging of case, auditor’s compliance
rating report and other factors.
MANAGEMENT & ORGANIZATION
15. There must be continuous education and
specialized training for staff to develop their
auditing, investigations and intelligence gathering
capabilities and also to provide updates on the
implications of certain legislative amendments.
Training is a key component of Jamaica’s Tax
Administration. Before employment as Auditors,
persons are interviewed for selection to participate
in the Tax Audit and Revenue Administration (TARA)
Training Programme for 13 weeks. This is a post
graduate programme accredited by the University
Council of Jamaica.
16. As the emphasis is on inflows from
consumption, we must ensure that the potential
revenue is greater than the administrative cost. The
General Consumption Tax threshold was increased to
J$1M and this makes entities with sales of less than
$1M, no longer liable to be registered or to file
returns. This has improved the cost effectiveness of
administering the tax and has also reduced the cost
of compliance for many taxpayers.
17. The accounts receivable for consumption tax
must be closely managed to ensure improved cash in
flows. Jamaica implemented a Call Centre on June 6,
2006, which manages accounts not paid up for 1-30
days (J$200M from 471 accounts collected in 6
weeks). Accounts in arrears over 30 days are
selected for other compliance actions.
CONCLUSION
The optimization of revenue from consumption
extends beyond compliance activities. It is also a
function of the quality of the management in place
and the use of information technology. Management
must be accessible to taxpayers as this can
contribute to improving public image, which can
encourage voluntary compliance. The recruitment,
selection and placement of staff to audit, assess
and collect the revenue will also contribute to the
success in revenue optimization.
Presented by
Desmond Batchelor
Tax Administration
of Jamaica
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