Fighting an expanding fiscal deficit, Minister of Finance Audley Shaw said Thursday that businesses should brace for reform of the system of waivers at Customs that deny the Treasury billions in revenue, as Jamaica plots its medium-term strategy to weather the ongoing financial crisis.

The waivers currently eat away 50 per cent of customs revenue that should flow to the Treasury.

"For every $1 billion earned through Customs, we give away $500 million," said Shaw at a forum hosted by Scotiabank Jamaica on the supplementary budget, adding that tax reform was coming to the island in a "fundamental way".

Higher than stated

Commissioner of Customs Danville Walker later suggested the ratio of waivers to actual taxes collected tended to be even by higher than the minister said.

The broad reforms and the plotting of a medium-term strategy are important targets that, if not addressed, could derail Jamaica's hopes for a deal with the International Monetary Fund (IMF) for a US$1.2-billion borrowing facility.

A team from the IMF is due in Jamaica again next week, Shaw said, as the negotiations continue, with expectations that the Fund will give its final nod to the facility next month.

The Inter-American Develop-ment Bank (IDB) is currently doing a study of tax expenditures in Jamaica - the findings are to be presented to Government in November - which will be used to guide the reforms to be implemented.

Walker told the Financial Gleaner that the customs waivers granted are almost as large as the revenue collected by his department.

But for this fiscal year to September, waivers and incentives - including those granted for car import duties - were valued at $8 billion, amounting to 23 per cent of the $35 billion in tax collections, according to figures supplied by Customs.

As a proportion of tax and non-tax revenue earned by Customs, the waivers amounted to 18 per cent. Customs did not disclose the data on the waivers granted in 2008, but collections in the same April to September period then amounted to $43 billion.

Reform waivers

"In my view, we definitely need to reform waivers," said the commissioner.

"Every waiver represents an interest group who, when defending themselves, speak of the good of the nation. Every group which asks for preferential treatment will speak of the benefits to protecting their industry. At some point, however, you will come to what you can afford, whether the waiver involves sugar, the hotel sector or any other group. We are at a point where there are very few waivers which we can afford."

International trade taxes contributed $67 billion to the Treasury last fiscal year.

The finance ministry forecasts a more robust $88 billion this year, but the taxes were already underperforming by close to $4 billion at August.

Custom's duty, one of five international taxes collected at the ports, represented $7.6 billion of the remittances at last breakout of the data up to August, and was about $1.5 billion off target.

Walker said that reform would create a more equitable playing ground for all. Anomalies to be addressed, he said, include sugar imports brought in under the guise of raw material inputs for manufacturing, but which end up being sold unprocessed on the market.

Close a loophole

If the duty charged on sugar as raw material and sugar for retail distribution was narrowed, it would, Walker indicated, remove the incentive for chicanery and close a loophole, to the benefit of honest importers as well as the Treasury.

"There is a need for reform which will help with collection and make the system more equitable," he stated.

Shaw said under the proposed tax reform measures being considered, the new system would reward value-added industries, such as food processors, while others who now benefit from the convoluted system would be left out in the cold.

"We want to lay out a red carpet for those with the wish to earn through high productivity," said the minister.

Jamaica does US$250 million (J$21.75 billion) of business in processed foods, while the industry had actual potential of US$2.5 billion (J$217.5 billion), Shaw said, but did not cite the source of his figures.

Shaw suggested that waivers would be cut but did not specify a target.

avia.collinder@gleanerjm.com

Danville Walker, commissioner of customs.