taxing

Business

business

The region's tax haven, Vanuatu, grapples with teething problems associated with a new tax structure

By Patrick Decloitre

message that they did not want to hear about income tax for themselves or their companies. Some business leaders even threatened to pull their businesses out of the country or to mass sack their work force.

Early this year, more than 60 business people (including retailers and whole salers of all sizes) petitioned the govern ment to delay implementing the tax, calling for discussions between the gov ernment and the private sector over the next three months to look at “alternative methods of raising revenue”. The peti tion also expressed “grave concern” and predicted an inflation would actually increase 15 to 18 percent this year as a result of the tax.

But the government went ahead and implemented the scheme anyway. And its effect started to show in the new prices - which rose by more than four percent.

Some businesses, for instance, which were paying a three-percent tax under the previous scheme were passing on a four-percent increase to their cus tomers, even though their actual increase was only one percent.

Port Vila taxi and bus operators held meetings in early January and decided the 70-vatu (US63 cents) urban bus fare would be increased to 100 vatu (US9O

Since the introduction of a four-per cent turnover tax for some businesses from January 1, prices in Vanuatu have hit the ceiling. The government is trying to explain the correct way of applying the new tax ... but business people see

it differently.

The tax was passed in parliament last year as part of a scheme to make busi ness turnover taxes more uniform.

This was the first step to broaden the fiscal base and to shift away from depen dence on import duties for revenue.

The implementation of the new tax also follows recommendations of Australian-funded tax expert Neil Warren, who was in Vanuatu last year to assess its tax structure. Warren pro duced a report recommending a wider tax system, which Prime Minister Maxime Carlot’s government has yet to

implement.

Reaction to the new tax from the busi ness community was strong. In a coun try which is known as a tax haven and has no income tax, companies were uptight about the very idea of a tax. As early as last year, when Warren was in Vanuatu and began consulting with the business people, he received a clear

cents) - a 42.8 percent increase.

The Land Transport Board intervened and advised the public not to pay the new fare as it was not the approved rate. The bus association replied it had taken into account, among other things, an increase in road worthiness inspec tion fees.

The Vanuatu Price Control Unit has held meetings with the business com munity in Port Vila and the northern town of Luganville, explaining that prices had to be marked up by four per cent only, but without success.

Principal Price Control Officer Joseph Tor said prices had changed a lot in Luganville, too. For instance, the price of a can of imported beer had gone up from 200 to 250 vatu - a 25-percent increase. Tor gave the northern town’s business community until this month to straighten out its pricing.

The Opposition Vanuaaki Pati described the situation as “price control out of control”, prompting a nationwide radio statement from Finance Minister Willie Jimmy, followed by one from Carlot.

“I don’t like paying taxes. Nobody likes paying taxes ... The reasons my government introduced the four-per cent tax were given at length while the bill was being submitted in parliament and reiterated by the Minister of Finance ...and I fully support his posi tion,” Carlot said. He added Vanuatu’s taxation system was “one of the laxest and most liberal in the world and is based on mutual trust between taxpay ers and government departments”.

“My government is fully aware of the inflationary potential but I consider the risk is insignificant compared to the benefits of the four-percent levy,” he said. “Let us stop whining and try to be more objective. We should give more thought to the tax’s beneficial effects.

The four-percent levy will increase pub lic sector revenue, and when there is increased revenue, there is also

increased spending ... (in) public sector

investment and ... more jobs and ... increased consumption.

“The private sector should not oppose and abuse the system, especially

by pushing the inflationary effects to

the extreme,” he stressed.

However brave the government’s stand might be, the consumer has so far been given little or no say in this battle between the government and the busi ness community. The only good thing for the consumer was the government rec ommendation that minimum wages in urban areas be increased from US$ll7 to US$l79 a month.

It is, after all, an election year. ■