It said the first loan of US$60 million would finance the third phase of a programme to support Jamaica’s macroeconomic sustainability, continue implementation of a national competitiveness framework, simplify tax administration, reduce the government’s budget support for state-owned enterprises, improve the private sector’s access to financial markets, and strengthen land property rights.
“The objective of the loan program is to improve competitiveness by promoting reforms that expand access to credit and reduce distortions in Jamaica’s tax system, reduce Jamaican government participation in inefficient enterprises and projects, and lower business costs through more efficient land titling and registration,” the IDB said.
It said the programme’s direct beneficiaries would include private sector companies, especially small- and medium-sized enterprises (SMEs) that are the most adversely affected by the current framework for doing business and accessing finance,
The programme would also benefit the informal sector that lacks incentives for participation in Jamaica’s formal economy; and individual entrepreneurs that will benefit with direct access to finance.
The IDB loan of US$80 million will help Jamaica strengthen its fiscal sustainability path and promote higher economic growth.
The banks aid Jamaica faces a significant challenge in terms of achieving economic growth and fiscal sustainability. It is important to modernize a tax system that is complex, discretionary and outdated.
“ A more effective tax administration will improve the efficiency and transparency of Jamaica’s public sector institutions,” it said, noting that the programme’s goal would be achieved by reducing tax distortions, which hinder private investment, employment and competitiveness; strengthening revenue collection through broadening tax bases and reducing tax rates; enhancing the Government’s control over budgetary expenditures; improving the fiscal sustainability of the National Insurance Scheme (NIS); and strengthening Jamaica’s Fiscal Responsibility Framework (FRF).
The operation will include the simplification of the tariff structure by reducing tariff dispersion, increase tax revenues by establishing a cap of 50 per cent on claims for deduction of tax losses, and reduce economic distortions and promote economic growth by lowering the corporate income tax rate from 30 percent to 25 per cent for unregulated companies.
The IDB said the Jamaica government would improve its efficiency and lower its wage bill as a percentage of its gross domestic product, thereby allowing greater investment in activities that promote economic growth. These tax reforms will reduce the fiscal drain and contingent liabilities by rationalizing their structure and improve accounting practices.