Jamaica’s prime minister, citing “public anger,” has reshaped a tax package required to obtain a $1.3 billion loan from the IMF by restoring an exemption on many  basic foods and services and raising rates for the highest income earners.

In a broadcast to the nation late on Wednesday, Prime Minister Bruce Golding spelled out significant revisions to the government’s week-old tax package in response to what he called “loud and profound” opposition from the Jamaican people.

The original package aimed at raising an additional J$21.8 billion in taxes was part of a broad agreement on an economic program announced last Thursday for Jamaica to receive the $1.3 billion loan from the International Monetary Fund.

It had included broadening a General Consumption Tax (GCT) to include previously exempt basic foods and items, such as vegetables, bread, sardines, animal meal and fishing gear.

Citing public outcry, Golding said the exemption on these basic items was being restored, although the announced GCT rate increase to 17.5 percent from 16.5 percent would remain.

Restoring the exemptions would “lessen the impact, especially on the poor and low-income families,” he said.

“This government does not have to await an eruption to recognize that it has to change course … We have listened, and we have heard,” the prime minister said in his broadcast.

But he stressed Jamaica urgently needed to raise extra tax revenue to obtain the international financial support it needed to confront the impact on its economy of the global recession. The recession has hit tourism on the Caribbean island and dented demand for key exports of bauxite and alumina.

“Without that additional revenue, there will be no IMF program,” Golding said. “Without the money from the IMF, the exchange rate would come under severe pressure because, with the fallout in bauxite and alumina earnings, remittances and other inflows, we would have difficulty in meeting the demand for foreign exchange,” he added.

“Without an IMF agreement, the additional funds from the World Bank and the Inter-American Development Bank which we need to support the budget would not be forthcoming.”

Citing “the principle of sharing the burden more proportionately, more equitably,” Golding announced new income tax increases for high-earning categories.

Individuals earning more than J$5 million annually would be required to pay an additional 2.5 per cent, while those earning more than J$10 million each year would have to pay an additional 10 per cent. This would be a temporary measure applying from Jan. 1, 2010, to March 31, 2011.

All Jamaicans already pay a flat income tax rate of 25 per cent of salary.

Golding also announced additional tax rates ranging between 20 and 25 percent for certain luxury goods, such as jewelry , large-size television sets, shotguns, jet skis and pleasure boats.

The prime minister said he had consulted with IMF officials in redesigning the tax package, which will form part of the medium term economic program being presented by the government to obtain the IMF loan, expected in the New Year.

Golding said last week that the loan terms included “harsh conditions” that would require imposing new taxes and cutting government jobs.

Ratings agencies have already downgraded Jamaica’s credit ratings as delays in negotiating the critical deal with the IMF have eroded investor confidence in the country, which remains dependent on disbursements from multilateral institutions (Reuters)

Antillean · Bridgetown, Barbados

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