Sun | May 28, 2017

PIOJ analyses impact of tax measures on consumption

Published:Friday | May 19, 2017 | 5:00 AMJovan Johnson

The Planning Institute of Jamaica (PIOJ) has conducted an assessment of how consumption spending has been affected by the tax measures that the Government has imposed to fund the increase in the income tax threshold.

The PIOJ made the document public on Wednesday during a meeting of the Public Administration and Appropriations Committee.

The 'Who Benefits? Who Pays?' assessment used households as its units of analysis. It divided the society into 10 groups called 'deciles', based on the per capita consumption. Decile 10 is the highest and wealthiest 10 per cent in Jamaica, while decile one is the lowest and poorest. It said that overall findings "suggest" that the typical household in each group benefited. But it noted that the wealthiest benefited the most, while Jamaicans in poor households who are not on the Programme of Advancement Through Health and Education (PATH) will be "worse off".

Below is what the PIOJ said about who pays for the almost $30 billion in indirect taxes (gas, cigarettes, alcohol, electricity) imposed over the 2016-2017 and current 2017-2018 fiscal years to fund the increase in the income tax threshold to $1.5 million from $592,800.

 

WHO PAYS:

 

- The impact these measures will have on household consumption will depend on the extent to which the goods and services are consumed by each household. The Jamaica Survey of Living Conditions (JSLC) was used to identify the share of total expenditure that is allocated to the items that were taxed and not taxed by the typical household in each consumption decile.

- Based on the data from the JSLC, the higher the income, the higher the share of consumption expenditure that is spent on the goods and services that were taxed. The typical household in the wealthiest two deciles (deciles 9 and 10) consumed more of the items that were taxed than any other decile, and the two poorest deciles allocate the smallest amount of their consumption expenditure to the items that were taxed.

-INDIRECT TAX IMPACT: Similar to the benefits from the income tax threshold increase, the cost associated with the increases in indirect taxes will be felt mainly by the wealthiest deciles. This is so because they consume disproportionately more of the items that were taxed, and they are more likely to be formally employed and above the previous income tax threshold.

jovan.johnson@gleanerjm.com