August curse hits Taxes

August has proven the most difficult month for the stewards of Jamaica’s finances, going way back in time to when Omar Davies was the Minister in charge and during Audley Shaw’s tenor as well.

What we’re calling the ‘August curse’ is a familiar cycle for the tax inflows to the government coffers to look good up to July, and then Wham! It hits a brick wall in August, falling well below target and with not much improvement for the rest of the fiscal year. Historically, this usually happens when a major tax package is implemented.

True to the curse, the August 2013 out turn is not looking good. Revenues that were up half a billion dollars over budget to July is now down $5.1 billion at the end of August to $162.7 billion versus $172.7 billion projected.

Non tax revenues grew by $1.6 billion to $11 billion but tax revenues fell by $5.9 billion. Grants also increased, as it grew $830 million to $1.54 billion. The major fall in revenues was Payroll related taxes $2.7 billion, tax on interest $1.50 billion, tax on dividend $600 million, customs duty and SCT and GCT on imports were off by $4.3 billion but was offset by a big jump in travel tax which increased by $1.85 billion.

Expenditure to the end of August is also down by $10 billion with interest cost falling by $5.1 billion, wages down $1.2 billion and programmes $3.2 billion.

August Curse | For August overall revenues were down by $5.6 billion even as non-tax revenues increased by a billion to $2.3 billion. The shortfall came primarily from PAYE $850 million, tax on interest $2.7 billion, special consumption tax for local goods $600 million and $1.3 billion on imports, GCT on local goods and services $700 million and on imports $500 million and customs duty $400 million.

Expenditure was off by $4.6 billion aided by $1.8 billion cut in Programmes, a small drop in the wage bill and a big $3.7 billion fall in interest cost but capital expenditure climbed by $1.2 million.

Why shortfall? | The Financial Secretary Devon Rowe indicated that the revenue shortfall occurred based on a number of factors. These include lower withholding tax on interest due to the government paying out lower interest to bond holders. He further indicated that revenue of about $1.5 billion was collected in the last business day of August, which fell on a week end. Those funds have been recorded in August’s revenues. Petro Jam plant was shuttered for some time thus reducing SCT on fuel imports. He confirmed that August is usually a difficult month for collections based on the impact that back to school expenditure has on people’s disposable income.