Vanuatu Government Forwards Tax Plan To Council Of Ministers

Plan for corporate, personal income taxes opposed by private sector

By Dan McGarr

PORT VILA, Vanuatu (Vanuatu Daily Post, July 19, 2017) – The government’s controversial on-again-off-again tax plan has been submitted to the Council of Ministers against the objections of the private sector.

The plan, which is substantially unchanged from the draft released last year, was submitted to Finance Minister Gaetan Pikioune on July 14.

Only the dates have changed since the Revenue Review Committee first issued its draft proposal. Under the new plan, both personal and corporate income taxes would be imposed beginning July 1 2018.

VIPA and company registration fees would be reduced at the same time. Rent taxes, business license fees and turnover taxes would be repealed on the same day. Import duties would be reduced by about 65% over a five year period. Stamp duties, offshore registration fees and associated costs would see reductions beginning on January 1, 2019.

The impact of the new tax regime would be reviewed at six and twelve month intervals.

Other recommendations arising from the review include general statements concerning accountability, transparency and efficiency in the new tax administration, efforts to modernise Customs and Inland Revenue and a comprehensive review of non-tax revenues.

The proposed rates for personal and corporate income taxes remain the same as in the original proposal. The report contains much more detailed rebuttals of some of the many objections raised during the consultation process, and investigates several alternate proposals before rejecting them, largely along the same grounds as those presented during the consultation process.

Still missing from the report, however, is any analysis considering the impact of the proposed revenue reforms on inflation, employment or GDP.

In defending the lack of analysis, the government states, “The overall impact of the reform package on GDP cannot be estimated because it will depend on how the Government spends the additional revenue.”

Also absent is any explanation of the basis for the projected revenues, which were roundly rejected by Vanuatu economic experts when the draft proposal was circulated.

New to this report was a summary of the rural consultations, which included some novel insights, including widespread support for income taxes, and a sense that the VT 750,000 [US$7,060] income threshold should be lowered.

The report painstakingly and at length makes the case for the fairness of the plan, and uses a number of metrics to place Vanuatu firmly in the middle ranks of capitalist nations in terms of income equity & distribution, per capita tax burden and the cost of doing business.

The plan argues that the number of people liable to pay personal income tax is in the neighbourhood of 15,000, based on 2015 employment numbers. That’s more than double the estimate originally computed by the Daily Post, in the absence of government-supplied figures.

The number of taxable companies, however, remains undisputed at 785.

According to that calculation, an average of VT2.8 million [US$26,400] annually would be paid per company in the first 12 months. That number would have to rise significantly—by 40% in just a few years—in order to meet revenue projections. The total cost to individual companies would vary greatly, however, with a majority paying well below the average, and a minority well above that rate.

A dissenting letter from Private Sector representative Thomas Bayer was included in the report. The dissent reaffirms its support for the Vanuatu Chamber of Commerce proposal to raise the VAT instead of imposing personal and corporate income taxes. It details other reservations and accuses the government of implementing a ‘hidden agenda’, seeking tax information in order for it to be shared overseas.

For its part, the RRC flatly denies the accusation that the efforts are being driven by foreign interests, but admits that it intends to standardise its cross-border tax information sharing shortly after the reforms are implemented.

The full text of Mr Bayer’s letter will be published in the upcoming issue of the Vanuatu Business Review.

The Daily Post will publish extensive analysis and reaction in the coming days.

Vanuatu Daily Post
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