Friday, November 28, 2008

The Flat Tax in Jamaica

January 3, 2008

By Alvin Rabushka

The flat-tax revolution has mainly encompassed Central and Eastern Europe. It has also touched Central Asia and Africa. For completeness, it is desirable to include the case of Jamaica, which has thus far been overlooked in these comments on countries that have adopted flat taxes.

The first general income tax took effect in Jamaica in 1920. It included a small exemption and consisted of rates that ranged between 1-10%. The postwar modern income tax was enacted in 1955 with graduated rates that ranged from a low of 30% on the first J$7,000 of taxable income to a high of 57.5% on all income above J$14,000. The effective rate was lower due to sixteen tax credits of various amounts that enabled individuals to avoid or evade a portion of their income from taxation.

The government of Jamaica undertook a major tax reform in 1986. It replaced all tax credits with a standard deduction of J$8,580. (The exchange rate was US$1 = J$5.56 in 1985 on the eve of the reform.) The tax base includes the Jamaican dollar value of fringe benefits and payments for reimbursable and non-reimbursable expenses. Interest income became subject to tax, and the previous graduated-rate structure was replaced with a flat-rate tax of 33⅓%.

Subsequent changes reduced the flat rate to 25% effective January 1, 1993, and raised the standard deduction almost every year to compensate for inflation. Beginning January 1, 2007, the tax exempted the first J$275,000 in income (equivalent to US$ 3,567 at the January 3, 2008, exchange rate of US$1 = J$77.1) The tax on interest from banks and life insurance companies was also set at 25%.

The details and effects of the post-1986 reform, from which much of the forgoing information was taken, are set forth in a paper written by Sally Wallace and James Alm of Georgia State University entitled “The Jamaican Individual Income Tax”(August 2004). The paper is available at

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