Should Jamaica Tax Corporate Income?

Abstract

This article evaluates Jamaica’s corporate income tax and tax incentive schemes. There are considerable administrative burdens and economic distortions associated with Jamaica’s income tax regime that result from taxing capital income in a “small open economy.” These burdens make a strong argument for repealing Jamaica’s corporate income tax. However, this tax is an important source of government revenue, and the political realities are such that repeal may not be a viable option. That being the case, Jamaica may have little choice but to try to broaden the tax base by trimming back on the tax incentive regime, committing the resources needed to improve enforcement of the corporate income tax, and lowering the tax rate in a revenue neutral manner. This approach would have the advantage of preserving an important source of tax revenue, staunching the erosion of the personal income tax base due to income shifting, and reducing the complexity and economic distortions associated with the current tax structure.