GOVERNMENT OF WESTERN SAMOA

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Treasury Department

Apia, Samoa

PRESS RELEASE: This press release has been issued under the authority of the Financial Secretary, Treasury Department Samoa. All correspondence should be directed to him.

May 29, 1998

The Minister of Finance in Samoa, the Hon. Tuilaepa Sailele Malielegaoi, today announced the most far reaching changes to taxation and revenue since the introduction of the value added tax in 1994. In tabling the 1998/99 Budget the Minister gave details of major reductions to import duties and excises, and further cuts to income tax. He pointed out that this comprehensive package of measures largely completes the taxation reform process that he announced in May 1993.

The package of changes will include:

Tariffs and import duties – major cuts to most tariffs with immediate effect.

Excise taxes – most excises are abolished entirely.

There will be no increase to the rate of Value Added Goods and Services Tax. The rate will remain at 10%.

Income tax – further personal income tax cuts have been granted. In addition, income tax holidays in the form of business incentives will be gradually removed.

Foreign exchange levy – the 1% foreign exchange levy will be abolished with effect from 1 January 1999

Value added goods and services tax (VAGST) – a small business threshold will be introduced for businesses with an annual turnover of less than $52,000, effectively exempting most small stores from the need to register for VAGST and from lodging VAGST returns.

Fuel Prices – the Government has recently completed negotiations with oil companies which will result in the rationalisation of the supply and distribution of petroleum products. This will result in both more revenue for the government and more competitive prices and service for the public.

Beer, spirits and wine – following a review of excises on alcohol, the retail prices of beer, liquor products and most bottled wine will fall.

Some offsetting increases in revenues have been necessary, but the major reductions in revenue have largely been financed using the growth in taxation revenues resulting from the growing economy. Improved compliance and administration of taxation and tariff collections has also contributed to revenue growth.

Government fees and charges will be increased; the incentives scheme will be gradually phased out as the new lower tariff regime provides general incentives to all business in a more transparent manner; some income tax concessions will be abolished;

Price controls – for goods affected by existing price controls a new price control order will be effective from 30 May to ensure that the benefits of the tariff reductions are passed on to consumers

Duties and Tariffs

The Minister pointed out that the cuts to import duties in many cases are major. Except for some tobacco, beverage and petroleum products, the highest rate of duty is now only 20%. Goods which were previously subject to duty of 50% – 60% are now subject to duty of just 20%. Goods which were previously subject to duty of 35% to 42% will now be subject to duty of just 15%.

The current rates of 0%, 5% and 10% will remain. In most cases duties have been reduced in accordance with the following table:

However, in some cases, to correct anomalies some of the reductions to duty will be even greater than the table above indicates.

Excises

Most excise taxes have been abolished entirely, including those on toiletries, televisions, stereos, fridges, hot water systems, musical instruments, cameras and photographic film and most motor vehicles. Excises have been abolished on all goods except for alcohol, soft drinks, tobacco products, and cars with an engine capacity of greater than 2000cc, and special provisions now apply to excise on fuel.

The combined effects of these cuts mean that the price of some goods will drop significantly. For example, the combined duty and excise on a new car with a landed value of $20,000 was previously $25,000, but will now be only $4,000. The combined duty and excise on a television set worth $500 was previously $370 but will now be only $100. For a dress with a landed cost of $40 the duty and excise was $24 but will now be only $8. On corrugated iron with a landed cost of $100 the duty and excise will drop from $35 to $15.

Vehicles

The rate of duty now applying to almost all vehicles will now be 20%, but minimum amounts of duty and excise will also apply. The following arrangements will apply from 30 May:

The duty on minibuses, cars, trucks, pickups and vans will be the higher of $2000 or 20%

For larger buses, the duty will be the higher of $2,000 or 15%

All excises on vehicles will be abolished except for passenger cars with an engine capacity of 2000cc or more, for which the excise will be the higher of $2,400 or 20%.

Personal Income Tax Cuts

The Minister announced that there will be significant cuts to personal income tax rates from 1 January 1999. Rates will change as follows:

The tax free threshold will increase from $6,000 to $8,000.

The income at which the marginal tax rate increases to 20% will be lifted from $12,000 to $14,000

The threshold for the top tax bracket will remain at $18,000

This will mean that about 1500 low income workers who currently pay income tax of up to $200 annually will no longer be required to do so. Approximately 3,650 workers currently paying income tax will get a tax cut of between $3.84 and $11.53 per week. A further 1,550 workers will get the benefit of the full tax cut of $11.53 per week.

Fines and Penalties for avoiding duty.

The Minister explained that the major reductions to duty and excise will increase the incentive for importers to use official channels to import goods in Samoa. At the same time, the fines and penalties imposed on importers who attempt to avoid duty or who attempt to smuggle in goods will be increased significantly. In most cases fines have been increased to five times or ten times their previous level. The Minister of Finance called upon all Samoans to take advantage of the new lower tariff regime and to clear all goods through official channels, and not to risk incurring the large fines.

The fines and penalties applicable to many other areas will also be increased.

Fuel

The Government has recently completed negotiations with oil companies which will result in the rationalisation of the supply and distribution of petroleum products. Following a fair and transparent tendering process an exclusive five year contract to supply and distribute petroleum products in Samoa has been awarded. This will result in both more revenue for the government and more competitive prices and better service for the public.

Government Fees and Charges

The Minister of Finance stated that there will be increases to a range of fees and charges, to recover a small fraction of the cost of the duty and tax reductions. Apart from raising extra revenue, these increases can be generally justified on the grounds of applying user pays principles, and to promote other social and environmental objectives. Also, many of the charges and fees that will increase have not been raised for about a decade. These increases are intended to take effect from 1 July 1998

The Minister explained that it is important to note that in most cases these increases will be more than offset by the reductions in other areas. For example, the increase in motor vehicle registration fees will be more than offset by the reduction in the price of fuel.

Incentives for Investment

Samoa now has one of the lowest tax structures in the Pacific region. With very low rates of duty and low rates of income tax, Samoa is now a very attractive destination for new investment. The Trade Commerce and Industry Department will now be able to promote the strong competitive advantages our tax and duty structure gives us over our Pacific neighbours.

In this new low tax environment, with a general incentive applying to all current and new businesses, there will be no need to continue offering specific incentives under the Incentives Act. Accordingly these will be phased out.

Summary

The Minister emphasised that these large reductions have been made possible by the policies the Government has implemented in the last few years. When announcing the VAGST and income tax cuts in his Budget speech of May 1993, the Minister promised a review of all tariffs and taxes as part of the tax reform process. Since that time, there have been several reductions to income tax, and selective reductions to import duties.

In 1994 and 1995 the Government responded to the major shock of the taro blight and its affects on the economy. However, as a result of these initiatives, the economy is now grow strongly and sustainably at a time when other Pacific Island countries have seen no growth or negative growth. This growth in the economy has now paid dividends to the private sector in the form of improved incomes and employment, and to the government in the form of increased tax collections. Improvements to government administration have been achieved with the introduction of Performance Budgeting and this has resulted in further increases to tax collections, and made it easier to control expenditure.

The Minister said that the Government is now proud to be able to hand these improved collections back to the Samoan people in the form of major cuts to duties and excises, and yet further cuts to income tax.

To assist the public and the media to better understand the changes, a series of questions and answers are attached. A copy of the Minister’s Budget Speech is also attached.

Private Bag APIA, WESTERN SAMOA Telephone: (685) 34333 Fax: (685) 21312, 24779 Telex: 233 Treasury SX

 

1998/99 BUDGET STATEMENT BY THE MINISTER OF FINANCE

HON. TUILAEPA SAILELE MALIELEGAOI

Mr. Speaker,

I move that the Appropriation Bill 1998/99 be now read a second time.

It is with great pleasure that I present, on behalf of the Government, the Statement on the Estimates for the 1998/99 fiscal year.

THE BUDGET AND ECONOMIC REFORM

Mr. Speaker:

1. In many countries it is the practice for the Budget to be given a title each year to highlight its major focus. If we were to adopt this practice in Samoa, the Budget this year could be called "Reform for Competitiveness and Prosperity Beyond 2000". This is a Budget which clearly demonstrates the Government’s resolve to move forward with the reforms that are needed to secure stronger economic growth. It is also a Budget which reinforces the key message that financial and economic responsibility is the foundation for improved services and a better quality of life for the people of Samoa.

2. This is not just a Budget which sets out what expenditure initiatives the Government proposes to undertake this year and how these will be funded. This is a Budget which introduces far-reaching change into Government finances and, more importantly, it is a Budget which makes a significant contribution to addressing structural weaknesses and inefficiencies in the Samoan economy.

Mr. Speaker,

3. Earlier this month, Government launched the Statement of Economic Strategy for 1998 – 1999. We have called this Statement Strengthening the Partnership, to highlight the Government’s firm belief that the key to sustained economic growth is a healthy and competitive private sector. It reaffirms our determination to act in a way which will support and enhance this direction for the future.

4. This Budget provides clear evidence of our commitment to do just this. It contains major reform initiatives which we believe will address the needs of all Samoans in a genuine and constructive way. At the same time it addresses the needs of the business community. We have accepted these measures as being the direction we must take to strengthen the Samoan economy and enhance future economic opportunity.

RECENT ECONOMIC PERFORMANCE

M.r Speaker,

5. Following the precedent set last year, I have provided a comprehensive review of economic performance over 1997/98 as an Appendix to the Budget Statement. This appendix also provides the background to the Budget strategy for 1998/99. I commend this appendix to Honourable Members.

6. The Samoan economy continued to grow steadily in 1997, with estimated growth of around 3 per cent. This is in line with our Budget forecast last year, and is consistent with the Government’s view of the sustainable long term growth path for Samoa.

7. There are a number of major public sector investment projects in the pipeline which can be expected to provide further stimulus to overall economic growth over the next two to three years. These projects will result in improved water supplies to Upolu and Savai’i, improved drainage and sanitation within Apia, education infrastructure and further improvements to roads, bridges, coastal protection and our international airport.

8. The balance of payments recorded a surplus of $26 million in 1997, compared with a surplus of $11.4 million in 1996. This has enabled us to achieve our policy target of maintaining foreign exchange reserves equivalent to well over 6 months worth of current imports. At the end of 1997, our foreign exchange reserves amounted to over $153.6 million, an increase of 20 per cent over 1996.

Mr. Speaker,

9 The financial sector has contributed to the underpinning of our solid economic performance. Commercial bank lending to the private sector increased 17 per cent in 1997. Money supply increased by 13 per cent over the year.

10 Inflation was exacerbated by increasing domestic food prices, although these effects were moderated by a steadiness in the price of imports. The rate of inflation over the 12 months to December 1997 was 7 per cent.

11. The introduction of financial sector liberalisation measures from January 1998 has begun to have a positive impact on the economy.

12 The Samoan tala exchange rate has in recent times fluctuated in response to the very large devaluations of Asian currencies. Currency movements are, of course, kept under close review.

13 Overall, the Samoan economy has performed soundly over the last twelve months, and in line with our forecasts in the 1997/98 Budget. The domestic economy is growing at a sustainable rate, the reforms we have put in place are supporting a more competitive and growing business sector, and our external position is sound. In short, our economic fundamentals are stronger now than for many years.

OUTLOOK FOR 1998/99

Mr. Speaker,

14. 1997 was a year of considerable uncertainty in the wider global economy. The financial crises which have caused so much damage to some of our Asian neighbours could yet have an adverse impact on the Samoan economy. Continued high levels of unemployment in New Zealand and Australia may also lead to a decline in remittances to Samoa. We have had to take these uncertainties into account in framing the Budget this year.

15. Notwithstanding these external factors, the Government is confident that the Samoan economy will perform solidly over 1998/99. The combination of sound economic fundamentals which have been built up through disciplined and responsible policies over recent years, and the reform initiatives which are actively being implemented, provide a firm foundation for continuing economic progress.

16. For the coming fiscal year the GDP target rate of growth in real terms is in the range 3 – 4%. This is both a desirable and a sustainable rate for our economy in view of the major reforms which are to be implemented and the need to ensure that the economy does not overheat, causing inflation and problems for our balance of payments.

17. In the coming year inflation is expected to be around 6%. Imports are expected to increase by about 5%, in line with the average growth of the last two years, whilst exports are expected to continue the positive growth achieved in 1997. Remittances and tourism earnings are expected to be maintained at around the same levels as 1997. Therefore the overall balance of payments is expected to remain in a small surplus. Consequently the foreign reserve target of a minimum six-month import cover should be easily met.

18. Mr. Speaker, I do not intend to go into the details of our expectations for the 1998/99 fiscal year. I invite Honourable members to refer to the appended Economic Statement for these details.

BUDGET STRATEGY

Mr. Speaker,

19. The strategy of this Budget is clear and simple. It continues the message of responsible and prudent spending. It also pursues the sound and responsible approach to financial and economic management that has been set in place over recent years; it builds on the foundations which have been established; it carries forward the Government’s well focused reform agenda to strengthen the economy over the years ahead; it targets expenditure priorities to the areas of greatest need in the community; and it delivers well constructed initiatives to meet those needs, consistent with financial responsibility.

20. There are, therefore, three key elements of our Budget strategy.

21. First, we will maintain sound policies and strong financial discipline.

22. Second, we will continue to implement the reform agenda which has been outlined in the Statement of Economic Strategy. This Budget implements major reform of the tariff system, which is a key reform priority.

23. Third, within what we can afford as a nation and as a community, we will focus expenditures on priority areas which will provide better access for Samoans to essential services. Through this Budget, we are continuing to place priority on the health and education sectors in line with the commitments we have given in the past.

24. This Budget contains a number of revenue initiatives to widen the taxation base to remove concessions or exemptions which are no longer justified. A wider tax base means lower rates of tax for taxpayers generally. I am pleased to be able to announce that this Budget delivers lower taxes for the overwhelming majority of Samoans.

25. On the expenditure side, our priorities reflect the commitment to improve access to essential services for all Samoans, particularly for health and education.

THE BUDGET

26. I now summarise the main aggregates of the 1998/99 budget:

Revenues $334,005,462

Ordinary revenues 248,003,800

External Grants 85,069,034

Stabex 932,628

Expenditure $345,418,951

Overall Deficit $11,413,489

Financed by:

Soft term financing $5,322,924

Financial sector program loan $8,000,000

Cash Surplus after Borrowing $1,909,435

27. In line with the framework for fiscal policy set out in the Statement of Economic Strategy, the 1998/99 Budget is projected to achieve an overall deficit of $11.4 million. This deficit is largely for investment purposes and will be financed by soft term financing of $5.3 million and the proceeds of the financial sector program loan totalling $8.0 million.

28. In official IMF Government Finance Statistics format, used for inter-country comparisons of fiscal performance, the overall 1998/99 budget shows a small deficit of $0.9 million. This is well within the commitment made by Government in the last budget statement that the overall deficit will be kept to less than 1% of GDP.

29. Consistent with the objectives of the performance budgeting system, close scrutiny of performance measures for department outputs had been undertaken in the process of negotiation and allocation of funds between Treasury and Departments.

Policy Initiatives

(i) Expenditure

30. I do not intend to speak on the details of the budget, but I would like to highlight some of the key features.

Education

Education remains a priority sector. Grants to NUS and Polytechnic have been increased by 47% from 1997 to $8.1 million in 1998. Increased levels of external assistance have been directed at improving primary and secondary education over the next 2-3 years.

Health

Health is another priority sector and more resources have been allocated to improve its diagnostic and treatment facilities. A major investment involves the purchase of 5 dialysis machines.

Invigorating Village Agriculture

Government has provided $1,000,000 to support a new initiative aimed at encouraging greater productivity and higher income levels in the rural communities. This initiative is geared towards promoting crop plantation competitions in the villages with a view to creating surpluses to meet domestic food demand. It will also support increased exports of agricultural or agro-based products. Primary responsibility for the implementation and monitoring of this new programme will be vested in the village council of chiefs and Pulenuu. Government agencies will of course provide guidance and assistance to the councils to ensure compatibility between the village-based initiatives and the strategic objectives set by Government in the 1998/99 Statement of Economic Strategy. Part of the funds will be utilised to support the continuation of the plantation access roads program.

Government is providing a one-off grant of $100,000 to develop the cut flower industry and help it take advantage of potentially large export markets.

Senior Citizens Pension Scheme

Included in the $7.3 million allocation for the Senior Citizens Pension scheme is an increase of $10 per pensioner per month to take effect from 1 January 1999.

Pension Scheme for Members of Parliament

An amount of $510,00 is provided for the establishment of a pension scheme for Members of Parliament. The necessary legislation will be tabled during the current session of Parliament.

(ii) Tariff and Revenue Reform

Mr. Speaker, Members of Parliament,

31. It is now my pleasure on behalf of the Government to formally announce a package of tariff, tax and revenue reform measures. These are major policy initiatives. They are key elements in delivering the vision contained in the Statement of Economic Strategy. These initiatives represent a significant further step in Government’s phased revenue reform program that began with the introduction of VAGST in January 1994.

32. Let me remind you that in the Budget Statement for the 1993/94 Main Estimates, Government recognised the need to reform the tax structure. I quote from that statement:

"….. we propose to reform our tax structure. In our view, there is a compelling need to reorient taxation to encourage income and employment generation, rather than to immobilise a powerful engine of economic growth."

33. Government went on to introduce VAGST and some tariff reductions in 1994 and in 1995 implemented major income tax cuts.

34. Despite these major changes, I signalled in the 95/96 Budget Statement that the process of tax reform was not yet complete.

35. In the 1995/96 Budget Statement I stated that;

"… the Government continues to be aware of the need for review of many of the tariff and excise rates …Many of these rates are now considered high, and anomalies exist in other areas of the tariff."

36. I announced in that statement that the Government, and I quote ;

"….will also be undertaking a general review of the tariff with a view to arriving at rates which better encourage trade, manufacturing and export whilst continuing to provide adequate levels of revenue for the Government…"

37. This review has now been completed. The findings of the review, combined with our knowledge of the impact of the changes already made, and in the light of the sound budgetary outlook secured by this government’s prudent fiscal management, make it now appropriate to deliver the major tariff reforms that were promised as well as further income tax cuts.

Mr. Speaker, Honourable Members;

38. I am pleased to announce that these tariff reforms and tax cuts have been achieved without the need for any increase of VAGST. The rate of VAGST will remain at 10%. Further the turnover threshold will be raised to $52,000 per annum, thereby exempting most small businesses from registration and lodgment requirements.

Mr. Speaker,

39. At this point I would like to officially announce that the new arrangements in relation to duty and excise rates will take effect from midnight tonight. Other new measures outlined in this statement will take effect on other dates as specified.

40. Tariff rates in Samoa have been very high by comparison with other countries. This means that Samoans have been paying more for the things they import from overseas, and businesses have faced high costs for those things they need to import. This has made it more difficult for them to be competitive. The high tariff rates have also encouraged people to look for ways to avoid paying duty on imports, and a lot of revenue has been lost to the Government as a result. It has also meant that everyone else has had to pay higher taxes.

41. The proposed tariff arrangements will be simpler and fairer for everyone. They respond in a very significant way to the challenge of strengthening the competitive environment for Samoan businesses and to building the foundation for sustained economic growth in the years ahead.

42. Honourable Members will also be aware that our existing taxation arrangements provide for many exemptions and concessions which benefit only certain groups in the community. Removing some of these exemptions and concessions where they are no longer justified, and addressing other anomalies in the overall taxation structure, will help fund the cost of the tariff reductions.

Mr. Speaker,

43. The key features of the tariff and revenue reform package are:

major cuts to most tariffs with effect from midnight tonight;

most excises are abolished entirely with effect from midnight tonight;

Income Tax - further personal income tax cuts have been granted. In addition, income tax holidays in the form of business incentives will be gradually removed;

Foreign exchange levy – the 1% foreign exchange levy will be abolished with effect from 1 January 1999;

Value added goods and services tax (VAGST) – a small business threshold will be phased in over the next 3 months for businesses with an annual turnover of less than $52,000, effectively exempting most small stores and other small businesses from the need to register for VAGST and from lodging VAGST returns.

Beer, spirits and wine – following a review of excises on alcohol, the retail price of beer, liquor products and most bottled wine will fall;

The major reductions in revenue have largely been financed using the growth in taxation revenues resulting from the growing economy. Improved compliance and administration of taxation and tariff collections has also contributed to revenue growth. Government fees and charges will also be increased with effect from 1 July 1998;

The incentives scheme will be gradually phased out as the new lower tariff regime provides general incentives to all business in a more transparent manner; income tax concessions will be abolished;

Price controls – for goods affected by existing price controls a new price control order will be effective midnight tonight to ensure that the benefits of tariff reductions are passed on to consumers; and

The fines and penalties applicable to many offences are being increased.

Duties and Tariffs

44. The cuts to import duties in many cases are major. Except for some tobacco, beverage and petroleum products, the highest rate of duty is now only 20%. Goods which were previously subject to duty of 50% – 60% are now subject to duty of just 20%. Goods which were previously subject to duty of 35% to 42% will now be subject to duty of just 15%. The current rates of 0%, 5% and 10% will remain but some items currently subject to 0% are moved to higher brackets. In most cases duties have been reduced in accordance with the following table.

These are summarised in the table in front of you.

45. The domestic investment incentive concessions will no longer be available for raw materials and motor vehicles, and the minimum amount required to be paid on capital items will be 10%.

46. The GATT valuation method for customs and excise will be adopted with effect from 1 January 1999.

Excise Tax

47. Excises will be abolished on all goods except for alcohol, soft drinks, tobacco products, petroleum products and cars with an engine capacity of greater than 2,000cc.

48. The combined effects of these cuts mean that the price of some goods will drop significantly. For example, the combined duty and excise on a new car with a landed value of $20,000 was previously $25,000, but will now be only $4,000. The combined duty and excise on a television set worth $500 was previously $370 but will now be only $100. For a dress with a landed cost of $40 the duty and excise was $24 but will now be only $8. On corrugated iron with a landed cost of $100 the duty and excise will drop from $35 to $15.

Vehicles

49. The following arrangements for motor vehicles will apply from midnight tonight.

The duty on minibuses, cars, trucks, pickups and vans will be the higher of $2,000 or 20%.

For larger buses, the duty will be the higher of $2,000 or 15%.

All excises on vehicles will be abolished except for passenger cars with an engine capacity of 2,000 cc or more, for which the excise will be the higher of $2,400 or 20%.

Personal Income Tax Cuts

50. Personal income tax rates will be cut from 1 January 1999 as follows:

The tax free threshold will increase from $6,000 to $8,000.

The income at which the marginal tax rate increases to 20% will be lifted from $12,000 to $14,000

The threshold for the top tax bracket will remain at $18,000

51. These changes provide a benefit to all workers currently paying tax. That is about 1,500 low income workers who currently pay income tax of up to $200 annually, will no longer be required to do so. Approximately 3,650 workers currently paying income tax will get a tax cut of between $3.84 and $11.53 per week. A further 1,550 workers will get the benefit of the full tax cut of $11.53 per week.

Broadening the Income Tax Base

52. The following measures to broaden the income tax base will take effect from 1 January 1999.

the existing provisions that make commercial income of churches subject to income tax will be actively enforced;

tax holidays under the Domestic Investment Incentives will be removed.

53. The current income exemptions and concessions benefiting certain groups in the community will be reviewed with a view to removing them in the interest of equity and fairness.

Government Fees and Charges

54. There will be increases to a range of fees and charges from 1 July 1998, to recover part of the cost of the duty and tax reductions. Apart from raising extra revenue, these increases are justified on the grounds of applying user pay principles, and to promote other social and environmental objectives. Also, many of the charges and fees that will increase have not been raised for about a decade.

Foreign Exchange Levy

55. From 1 January 1999 the Foreign Exchange Levy will be abolished.

Mr. Speaker,

56. The Government will make sure that the retail price savings which should result from the tariff and excise reductions are passed on to the consumers. We will do the following to achieve this objective:

issue a new price order today to take effect from midnight tonight

seek early passage of the Fair Trading Legislation to enable the relevant Government agencies to enforce compliance and prosecute businesses who do not pass on the savings

enforce the other increased fines and penalties that we have introduced in appropriate cases, and

seek the cooperation of the private sector and its representative bodies

Other initiatives

(i) Rationalisation of Petroleum Industry Operations:

Mr. Speaker,

57. A significant policy initiative Government has undertaken is to rationalise the supply and distribution of petroleum products. The objective is to obtain economies of scale in supply and distribution. This will eliminate duplication and will result in increased efficiency. It will also enable the price of petroleum products in Samoa to be more closely linked to international prices. As a result of a fair, yet competitive tendering process, an exclusive five-year contract has been awarded to supply and distribute petroleum products in Samoa. Substantial foreign exchange savings will be generated as a result of the new arrangements which will benefit the government in terms of revenue and, more importantly, the public in terms of more competitive prices and better service.

(ii) Corporatisation

58. Government will continue with the program to corporatise, and where appropriate privatise, government business enterprises, to ensure that maximum efficiencies are achieved in the delivery of services throughout the country. An important initiative will be the corporatisation of Post and Telecommunications Department and preparations for this are under way.

(iii) Public Sector Reform

59. Further reform and restructuring of the public sector will continue. The Government will continue to focus the activities of Departments on core business, and we will free up resources where non-core activities are identified.

Supporting legislation

60. The following legislation forms part of the budget and must be approved together with the 1998/99 Appropriation Bill.

Miscellaneous Fees Amendment Bill 1998

Fines (Review & Amendment) Bill 1998

Beverage Containers Tax Repeal Bill 1998

Excise Tax (Domestic Administration) Amendment Bill 1998

Foreign Exchange Levy Repeal Bill 1998

Enterprise Incentives & Export Promotion Amendment Bill 1998

Income Tax Rates Amendment Bill 1998

Customs Amendment Bill 1998

Excise Tax Rate Amendment Bill 1998

Customs Tariff Amendment Bill 1998

Value Added Goods and Services Tax Amendment Bill 1998

Supplementary Estimates

61. Government will table a second 1997/98 Supplementary Estimates to clear unauthorised expenditures and provide additional resources to some Departments to achieve their approved outputs.

Public Accounts

62. As foreshadowed in my earlier statements to the House and in other public statements (including the 1998/99 Statement of Economic Strategy), I shall later in this sitting of Parliament, table Public Accounts for the four years to 30 June 1993. Accounts for 1994 and 1995 will be tabled by December this year and the remaining Accounts for the years up to 30 June 1998 will be tabled in the Parliamentary sittings in 1999.

CONCLUSION

Mr. Speaker,

63. The Government is proud of the financial and economic consolidation that has been achieved over recent years. As a result of these efforts, the Samoan economy is strong and growing, and opportunities to participate in the benefits of growth are increasingly available to all Samoans.

64. Our reform agenda is not yet complete, and as I have indicated, there are developments in the world economy which pose risks for Samoa. We need to press forward vigorously with reform to ensure that we continue to build an economy which is strong and resilient, and capable of withstanding adverse shocks.

65. There is still further to go to improve the competitiveness of Samoan businesses, to develop a more diversified economy, and to generate employment opportunities to meet the needs of our population. We now challenge the private sector to embrace the investment opportunities presented by this very competitive new framework, and in doing so to ensure that the benefits of these reforms are shared by all Samoans.

Mr. Speaker,

66. In the Budget Statement last year I said that the Government had resolved to make Samoa a model developing economy in this region. This Budget demonstrates clearly that we meant what we said. It is a carefully constructed package which addresses the needs of the Samoan community in a positive and forward-looking way. And it responds to the challenge of continuing to build and strengthen the economy. It continues our commitment to fiscal responsibility, it advances our reform agenda in a very significant way, and it provides benefits for all Samoans through improved access to essential services and greater economic opportunity.

67. This Budget is another bold step forward to the year 2000 and beyond. The measures it contains will contribute to the enhanced well being of Samoans today, and a better inheritance for our children, and the Samoans of tomorrow.

Mr. Speaker,

68. I commend the Budget to the House.

Soifua

Tuilaepa Sailele Malielegaoi

Minister of Finance

Media Kit

Questions and Answers

Sample Questions and Answers

Q.1 What has the Government decided to do on tariffs? A.1 The Government is lowering the rates of duty and excise paid on many goods that are imported into Samoa. Because this will have a large impact on the total revenue available to the Government, some adjustment has to be made to raise additional revenue from other taxes, fees and charges. However, a significant part of the cost will be met by restraining Government expenditure, and by appropriating some of the projected Budget surplus for this purpose.

Q.2 Why are these changes being made?

A.2 Our tariff rates have been very high by comparison with other countries. This means that Samoans have been paying more for imported goods, and businesses have faced high costs for those things they need to import. This has made it more difficult for them to be competitive. The high tariff rates have also encouraged people to look for ways to avoid paying duty on imports, and a lot of revenue has been lost by the Government as a result.

The new tariff arrangements will be simpler and fairer for everyone, and they deliver on major promises made by the Government. They will also move Samoa significantly down the path of meeting the requirements of international obligations such as for WTO membership

Because lower tariffs mean less revenue for the Budget, some adjustment has been made to some other taxes and charges, and further restraint in Government expenditure will take place. If the Government did not do this, it would not have enough money to maintain spending on services such as education and health. The changes to other taxes and charges that are proposed will have a small impact on most Samoans, and are designed to make the tax system fairer for everyone. They will also simplify the administration of some other taxes, and will reduce the VAGST recording and reporting obligations imposed by Government on many small businesses.

Q.3 When will these changes happen?

A.3 Most of the tariff changes take effect immediately and without prior announcement. That is, they take effect from the introduction of the Budget. The changes need to be done this way so that people do not have the opportunity to manipulate things to avoid paying the right amount of duty or other taxes. For most people, the amount of duty they will have to pay will be lower, so they will not be penalised.

The changes to income tax arrangements will take effect from 1 January 1999 – to tie in with the commencement of the new income tax year, and to allow businesses and individuals affected enough time to prepare for the changes.

Q.4 Are these changes designed to raise more revenue for the Government?

A.4 No. In fact, for the 98/99 Budget, the increases in some taxes, fees and charges will raise less than the expected loss of revenue from tariffs, although this shortfall should be more than made up in the second and subsequent years. The aim is to achieve a better, fairer system, not to raise more revenue for the Government.

Q.5 Will I now pay less for imported goods than before?

A.5 Because of the lower tariff rates nearly all Samoans will pay less for imported goods than before. There will be some increases in duty to be paid on such goods as beef, agricultural pumps, and insecticides because these products will no longer attract a zero rate of duty. Here are some examples of how the existing tariff rates compare with the proposed new rates:

A two litre car, with a landed cost of $20,000:

Current duty + excise amount = $25,000

New duty + excise amount = $4,000

A dress, with a landed cost of $40

Current duty + excise = $24

New duty and excise = $8

Television set, with a landed cost of $500

Current duty + excise = $370

New duty + excise amount = $100

Jar of jam, with a landed cost of $2.00

Current duty + excise = $1.20

New duty + excise = $0.40

Corrugated iron, with a landed cost of $100

Current duty + excise = $35.00

New duty + excise = $15.00

The Government will be monitoring prices on imports and will be working closely with the private sector to ensure that the lower duty rate savings are passed on to consumers.

Q.6 But with the changes in other taxes, fees and charges, will I end up worse off?

A.6 These changes have been designed to broaden the tax base and make the tax system fairer for everyone. This means improving the tax system so that all Samoans should pay their fare share. Most of the increases in taxes, fees and charges are to eliminate concessions or loopholes that are not justified, or to implement a fairer "user pays" approach for some government services.

For almost all Samoan taxpayers, the overall result of the changes will be a lower tax burden - they will be better off.

Q.7 How will these changes help the business community?

A.7 The Statement of Economic Strategy recognises that we need a strong and competitive business sector if we are to be able to continue with sustained economic growth into the future. In the past, busineses in Samoa have faced high costs, and this has weakened their ability to compete either in export markets or in providing goods and services for the market here in Samoa. By reducing the high costs faced by local businesses on those things they need to import, we will be taking a big step towards improving their competitiveness. This is part of what the Statement of Economic Strategy calls strengthening the enabling environment.

There is another way in which these changes will help the business community, and at the same time help all Samoans. At the present time, very large quantities of goods are being imported into Samoa, from American Samoa and elsewhere, without proper declaration and without payment of the proper duties. The very high tariff rates on goods such as many food items, clothing, toiletries, building products, motor vehicle spare parts and televisions have encouraged people to find these other ways of bringing goods into the country. With lower tariff rates, there will be little incentive to bring goods into the country this way. What we expect to see, over time, is the growth of new businesses, particularly in the wholesale and retail sectors, handling the import and distribution of a much wider range of goods. As this happens, business and employment opportunities will improve, and Samoan consumers will have greater choice of products.

Q8 What will be the likely impact on the balance of payments?

A8 Another likely effect of big cuts in many official duty and excise rates is on reported import levels, and the impact on this on the balance of payments statistics. For example, if there is a significant move away from informal, unreported imports from American Samoa to more formal distribution channels and reporting, the reported levels of imports into Samoa are likely to show a marked increase. This will reflect in the statistics as a deterioration in Samoa’s balance of payments position. Based on the strong anecdotal evidence that suggests a high level of unreported trade between American Samoa and Samoa, this would mostly merely be a deterioration in the reported numbers, with the actual underlying balance of payments position being largely unchanged.

Q9 How will this package affect inflation?

A9 The net impact should be a reduction in the inflation rate, probably dropping below a zero rate for a short time, as a result of these changes. Substantial tariff related reductions in the prices of many imported items, along with reductions in the price of fuel, will only be partially offset by increases in fees and charges.

Q10 How will this package affect the tourist industry?

A10 The net impact should be strongly positive. Tourism operators should see their costs lowered on many imported products, such as many food items, furniture and fittings, office equipment and supplies, vehicles, fuel, and on some locally made or imported alcoholic beverages. These cost savings will be partially offset by higher fees and charges, but the net effect should see a sizeable reduction in costs. This will improve Samoa’s competitive position in the world tourism market – and is a prime illustration of one of the key reasons for embarking on major tariff reform.

Q11 How will this package affect manufacturers?

A11 The impact on manufacturers will vary widely. In some cases, manufacturing businesses will be clearly better off, as the cost of many of their inputs will be lowered. In other cases, they will find it hard to compete in the marketplace with the reductions in the prices of many imported goods.

Local manufacturers who want help to improve the cost and quality of their production will be offered ready access to a wide range of technical assistance for this purpose. These assistance programs are being coordinated by the Trade Commerce and Industry Department.

Both the Manufacturers’ Association and the Chamber of Commerce have expressed strong support for a tariff reform package along the lines proposed.

Q12 Will cost savings be passed on to consumers?

A12 For many products, competitive market pressures will ensure that cost savings resulting from this reform program are passed on to consumers. Nevertheless, the Trade Commerce and Industry Department will be closely monitoring prices, and where there is evidence that cost savings are not being reflected in prices, will take action under the new Fair Trading legislation in appropriate cases. For price controlled goods, new price orders reflecting reasonable cost savings flowing from the reforms will take effect from tonight.

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