I appreciate that Junior Minister, Damion Crawford took the time to craft a response to my blog post titled “ The Jamaican Government’s Withdrawal Tax is anti-business, does not protect the poor and weakens the middle class” You can find his response to me here.
It’s important that we distinguish between revenue/income, profit and day to day working capital needed to run a business. The $6,000,000 mentioned is not profit or income, it’s day to day working capital, i.e money that you use to make money; the government is essentially taxing the money that businesses will use to make money and if they’ve made any money then the government taxes the business again. Day to day capital is crucial in the running of any business and I think that your math calculations oversimplifies how much of an impact the withdrawal tax will have on businesses and individuals.
I am not opposed to taxes and I don’t think any well thinking Jamaican is opposed to it either, but I strongly believe that it can and must be equitable to the majority.
A relevant and poignant example:
John Brown is in construction and he is the owner and operator of a company called Brown’s Construction Limited. Mr. Brown recently took on a house building project for his client, Miss Sandra Miller (She took a loan). To get the ball rolling, Miss Miller sends $1,200,000 (She wires the money to him as it’s illegal to have more than a million or equivalent on your person) to Mr. Brown solely to buy construction material for her house (e.g blocks, steel etc), in this particular scenario a withdrawal tax of 0.09% would be applicable to Miss Brown. She would then pay $1,080 ( of course the bank’s charge has not been factored in).
Needing to purchase the material, Mr. Brown would then need to pay the hardware store or his supplier the $1,200,000. This is considered a withdrawal so the 0.09% tax would again be charged. Bringing the total tax for more or less one transaction to $2,160 JM + Bank charges.
This is another potential scenario and I’m afraid that raising the income tax threshold will not offset the other additional expenses that Miss Miller and others will inevitably have to deal with.
You mentioned in your post that it “protects the most vulnerable”, I disagree. Everybody is affected, some much more than others. Government policies – particularly taxes – have knock on effects that ripple through the economy. It can show up in many different ways, sometimes in inflation (in this case price increases right across the board) – which hits everybody – or sometimes not as prevalent as economy wide inflation but just price rises on many goods and services.
There is a reason why it is the largest revenue measure for FY 2014/2015.
If after understanding what I’ve said above and still holding the view that it is fair for the majority then there’s not much else I can say.