Proposed 40% Export Tax Bemoaned By Vanuatu Private Sector

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Businesses critical of rate, meant to encourage value-addition before export

By Jane Joshua

PORT VILA, Vanuatu (Vanuatu Daily Post, March 1, 2014) – The proposed astronomical 40% value-addition export levy to be imposed on products that have the potential of value-addition like kava, copra and cattle in the Industrial Development Bill being advanced by Vanuatu’s Department of Industry has raised eyebrows and criticism in the private sector.

"I do not have a problem with the tax but 40% is unbelievable," was Santo businessman Peter Colmar’s frank response at the 2nd National Consultation on the Industrial Development Bill in Port Vila.

"We have to compete in the world market; we have the highest labour costs in the Pacific, high electricity costs and low production. We need policies that will help, not rip off the farmers.40% is way too high, 20% is too high and even 15% is too high. We have to be practical and look at the scale of the economy in Vanuatu.

"We are already paying the Vanuatu Commodities Marketing Board (VCMB) between 7-8%. We cannot be taxed by both the VCMB and the Government because at the end of the day the farmer is going to lose.

"Cocoa is okay but production is fairly small and it is on world price, varieties of the cocoa beans planted here are very small so you cannot get premium price due to bean size.

"We pay 7% for kava, we can buy more but that has to be taken off the farmers. Already there are complains over how much we pay per kilo. The way I see it this is hurting the farmers. I am 100% sure if there too much tax, exports will stop."

In perusing the points on value-addition levies, Letlet August from the Department of Finance said it is important that members of the society be educated on the bill and its implications.

"The people who need to understand this process is the people who will pay the price," he said. "Our consultation must go as far as them because at the end of the day it is them who will bear these costs. We say we have consulted with manufacturers but on this the society must know because it will be them for the price.

"I say this because a very current example is Chiko. We were requested to raise tax on Chiko but the supplier of chicken has a high demand. And while advice came in that we should not increase the rate, if we are to give that it will be like a monopoly.

"And what is the guarantee that after three years it will become sustainable?"

Carolyn Ernst of Eden on the River and Elcress at Rentapao pointed out that even without Government intervention costs will force the industry into value-add. "We cannot export raw products except in a couple of areas," she said.

"And if you remove root crops, pawpaw, bananas, we still cannot compete against Fiji, Tongoa and Samoa. Our labour costs are the highest in the Pacific, our energy costs are the highest in the Pacific and we need to value-add.

"However note that our industries are working on world price, so any levy or fee imposed on export is going to come down to the producers. It is not the industry but the grassroots producer that is going to feel the brunt of these fees. At the end of the day if you want industries to grow or if you must tax to get money why don’t you tax imports instead of exports?"

In addition Mr. Colmar also raised a significant challenge with certain primary products like kava.

"Our two major markets-Fiji and New Caledonia want the raw (kava) product because it is their drinking market, so if we have to further process kava they will not accept it, they want it raw and you have to consider that.

"And of course the size of our economy, in a small scale economy there are some things we cannot do because we are too small."

But Dr. Eugene Stuart (UNDP Consultant) said while the bill says the rate of the levy will be a maximum of 40%, it "does not mean it is going to be 40% but that it will not exceed 40%".

"It is a policy action, the idea of the creation of a levy to be imposed on the export of certain commodities is to facilitate manufacturing industry to expand its capacity or to add-value here in Vanuatu to primary products involved, to stop raw commodities being exported if they can be processed further here in Vanuatu and thereby add value to products concerned," he explained.

"Since we started this, we have talked about the ban of live cattle exports and if there was levy of 2% on this or 25% on that, who will lose, in relation to every single sector if a levy is introduced."

In response to the comment on Chiko, Director of Trade Jimmy Rantes who is of the opinion that suffice consultation in Vanuatu has been taken on this Industry Bill said, "The decision on Chiko is a Council of Minister’s decision and comes with a commitment. If it does not comply we can cancel our support.

"The point is if we have the capacity to manufacture and value-add here then let us do it."

And Director General of Agriculture Howard Aru observed, "Unfortunately a policy cannot please everyone. The government will pull on one side and the Private Sector may pull in another direction.

"I hope that we will not merely say no as there are two competing interests-for the private sector it is profit and for the government providing services.

"Often on trade issues some views maybe a little bit radical but I appeal to the private sector not to say no to everything but find a common line that everyone can be agreeable for everyone".

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