A Tax Administration Issue

Inconsistencies that pervade the revenue collection system cause inordinate delays and are time consuming. One contradiction that should be speedily resolved is the requirement to report assessable income for Education Tax based ( line 41 of the Income Tax form (IT01)) <–See PDF Form Here

and the confusion at the Revenue Office when the taxpayer reduces his/her liability by the amount paid through the Pay As You Earn (PAYE) system.

Many times the taxpayer is asked to revise his return at the Tax Collection Centre and this is a travesty. This contempt is compounded when the taxpayer is asked to write a letter stating that an error was made. Nothing in the taxpayer’s initial presentation of the taxpayer’s liability on the Education Tax form (ET01) suggests that this course of action is warranted.

Mini Glossry: ETOI is the Education Tax Return, IT01 is the Income tax Final Return

The reasons are obvious: Please follow very closely

Currently, the assessable earnings for Education Tax is reported on the total line, (column 2, page 2) of the ET01 form and the computed tax at the total line ( column 3). Since a taxpayer should pay no more or no less that his/her fair share, then the amounts already paid should be reported at line (d) column 3. The difference between the computed figures at column 3, total line and column 3, line (d) placed in column 3, line (e).

According to the instructions on the ET01 form, all 4 figures should be reported at lines 8,9,10 and 11 on page one of the aforementioned form.

Line 41 of the IT01 form includes income from employment and if the taxpayer paid Education Tax through the PAYE system:  We submit that this should be reported at Column 3, line (d) on page 2 of the ET01 form and taken to line 9 on page 1 of the form.

We note for the record that line 41 on the form includes pension at line 29 dividends and interest at line 30 yet an asterisk on page 2 of the form shows that these sources of income are not assessable for Education Tax. Moreover Education Tax from the PAYE system is currently reported on Form S02 and formerly Form ET 03.

A Recommended Solution

We submit that the tax forms needs revision if a clear understanding of their preparations can be forged among taxpayer, tax preparer and tax collectors.  We further opine that a relevant worksheet for tax preparation ( like the IT 2012 issued by the Canadian Government ) should be available on the TAJ website.

This Federal Worksheet is ostensibly an explanation on how to prepare the tax form and is not required to be submitted when presenting the tax returns.

Understanding builds compliance.

Additional Resources www.jamaicatax-online.gov.jm Tax Administration Jamaica http://www.jrs.gov.jm/ Registrar of Companies  www.orcjamaica.com

Professionals to file Tax Returns

By the end of the year of assessment 2012 some taxpayers even if employed through the PAYE (Pay As You Earn) system will be required to file tax returns. The genesis of targeting a group of professionals for paying income tax dates back to the Jamaican Tax Structure Examination Project. That project conducted between the period 1993 and 1997 found that the major form of tax evasion in Jamaica was among self employed professionals. A sample of professionals listed in the professional directories showed that only 22% were within the income tax net. It was not ascertained from the research whether some of the professionals in the sample were employed in the PAYE system and would therefore not be required to file a tax return unless they had additional income.

Furthermore, professionals on the PAYE system who gained income from their profession in addition to income from employment may mistakenly believe that they discharged their liability through the PAYE system. Requirements for filing or writing their demand for tax will ferret out the additional income and by this it is hoped that additional tax will be due and paid. However, the rules of expenses laid out for incurring the income hold and the additional income can conceivably result in a lowering of the taxable income and the refund of tax.

Suppose that a medical doctor invest $5,000,000 in setting up an office while being employed under the PAYE system during a particular year of assessment. If in that same year he generated $1,000,000 in additional income and paid out $750,000 in overheads for rent, utilities, salaries and materials used up in his private practice, on the face of it he would have generated $250,000 in additional taxable income. But when 30% of the amount investment in fixed assets which is $1,500,000 is computed for initial and annual allowances for wear and tear of his assets he would have made a loss of $1,250,000 and would be entitled to a refund of tax of $312,500 provided this amount was paid through the PAYE system.
When the reform is view in the light that the tax system will be fair to everyone and that the Government will aggressively refund taxes overpaid with the same vigour as collecting the taxes owed taxpayers will have no difficulty complying. A good tax system should be certain, clear and convenient to the taxpayer.