Sabrina Gordon, Business Reporter

Finance Minister Dr. Omar Davies on Wednesday, assured employers that the flat rate to be applied to payroll taxes would not exceed the current gross rate of 18 per cent shared between employer and employees under the tax consolidation plan, but he admitted that the process still had its teething pains.

"This is an important initiative which will need total buy-in of employers and the trade union movement representatives for it to be successful," said the guest speaker at the Jamaica Employers' Federation's monthly CEO Breakfast, Wednesday.

"We must see it in a broader context because not all deductions are taxes."

The government is rolling the Education tax, National Insurance Scheme (NIS), National Housing Trust (NHT) and Human Employment and Resource Training (HEART) tax into "one flat earnings- based payroll contribution."

Currently, employers pay out 11.5 per cent of their payrolls in statutories atop a 33 per cent corporate income tax, while employees, who do not pay HEART contributions, pay 6.5 per cent in deductions plus another 25 per cent income tax.

The returns are filed separately, but that will change under the consolidation, with the one payment now to flow to the treasury.

Wary of the plan

For now, unions, employers and even the even the state agencies themselves are a little wary of the plan.

NHT, to which returns are normally paid directly, is already on record with its concern that its cash flows could be impacted - it collects about $8 billion annually from corporate and PAYE sources - if it had to work on central government's timetable for receiving funds from the Treasury.

The Finance Minister has not said what the new gross tax will amount to, but for now the plan will retire the $500,000 cap on NIS contributions.

Still under consideration is whether to abolish the education tax and replace it with an education fund, a dedicated pool which would help finance the 10-year $520 billion reform programme crafted in 2004 to modernise the sector.

Davies also said Wednesday that the definition of 'earnings' could be problematic, an acknowledgement that would please retiree Geoffrey Hannah, who has led a one-man lobby against tax laws that gives state agencies claim, if they so desire, to his investment income and other revenue he says he derives from his hobbies.

Hannah's quest began in 2000. He argues that the government should retain the definition of earnings as income from employer to employee, and earnings from commercial enterprise.

Not immediately clear was whether an agency like NHT would continue to get the same amount of funds as when it did the collections itself. Davies' comment appears to suggest otherwise, saying Wednesday the new plan was meant to redistribute resources to health and education, both of which are resource deficient.

"At different point the society is faced with different priorities and need additional resources for health, education and housing," noted Davies. "As priority arises we can reallocate resources to the new areas, but it must come through deliberations with all relevant stakeholders."

He adds that the quality of Jamaica's workforce has been a major hindrance to development of the country in terms of its value added by training and qualification."

Still pending Davies said are the review of all laws and regulation for uniformity and the establishment of single consolidated collection machinery.

sabrina.gordon@gleanerjm.com