Abusing

the system

Vanuatu ’s Finance Minister, Willy Jimmy, discusses his concerns with Patrick Decloitre as his government revises the tax structure

PIM: It seems that since the introduction of the new four-percent turnover tax, some businesses have increased their prices more than they should have.

WJ: I think what is going on in Vanuatu at the moment, related to the four percent on turnover, is that business people are abus ing (it) and assisting in creating high infla tion. As a result of the introduction of this tax, the business community is no longer honest; it is putting prices up by more than four percent.

PIM: Do you think they are taking advan tage of this new tax to increase their prices much more than they should, and even when they shouldn’t?

WJ: That’s correct. The only categories of business that should be affected are D3a and D3c licence holders - that is, whole salers and retail importers. The others should not apply the four percent tax at all. For example, the kava bars should not be increasing their prices. Even some goods on the local market have started to

apply four-percent increases on locally

grown products. This (the tax) doesn’t affect them at all but they’re taking the opportunity to increase their prices.

The alternative now would be for the big supermaricets and wholesalers to capitalise the four percent on the value of the prod ucts once they are cleared from the wharf.

This is when they should add their four percent and work out their selling price, so that every time they ring up the till, they

should not be saying “four percent govern ment tax”. So, the four percent should be included in the overall cost once and for all.

PIM: Concerns have been raised that this tax will affect the inflation rate this year, with predictions of 15 to 18 percent increases.

WJ: I can see their point. This is exactly where most of the retailers are abusing the system. If an importer imports a bag of rice and wholesales it to a retailer, the four per cent must be included once and for all. I can’t see how it is accumulating. I’m look ing into the possibility of signing an order to enforce all retailers and wholesalers to include the four percent before retailing their goods. There will be an order issued very shortly for wholesalers and retailers to accommodate the four percent, so that it is not charged separately. This could be done in March.

We’ll have to amend the Price Control Act and enable the Price Control Unit to rein force it. This is after parliament sits and reviews all import duties. We should then be able to know exactly how much, say rice or other basic commodities, should be sold for in Vanuatu.

PIM: Do you think the Price Control Unit here has so far been able to ensure prices arc not going out of hand?

WJ: We can’t do very much at this stage because wholesalers and retailers also have to take into account import duties

they are paying on products. But if we reduce the duties, this will have to change.

PIM: Is this new four-percent tax the first step towards a new base for revenue col lection in Vanuatu after recommendations last year by Australian expert Neil Warren?

WJ: Yes, this is one of the first recommen dations that we’re trying to implement out of Dr Neil Warren’s report. But, of course, the principal of expanding the tax base in Vanuatu has continuously been pointed out by the International Monetary Fund, the World Bank and the Asian Development Bank. Australian International Development Assistance Bureau-funded expert Neil Warren came up with the same conclusions but these are more precise and transparent.

PIM: What’s next?

WJ: I’m not quite sure I want to reveal that. We’re still working on that with the advisers and technical people from the Department of Rates and Taxes. The gener al idea, in the long run, is to try to do away with our present revenue collection sys tem that is based on customs and import duties.

PIM: So far the tax system in Vanuatu has been heavily reliant on import duties. Will there be a change?

WJ: Exactly. At the moment our govern ment relies heavily on import duties to get revenue. If we shift our revenue collection system to other sources, then the import duties should go down. This is also one of the recommendations of Neil Warren’s report. Some import duties should even be zero percent.

PIM: Some business people here have said an income tax is not Mr because it means only a few people will pay for the whole country. What do you think?

WJ:I don’t understand. These people com plaining are the ones who are making the most income. Most of them have monopo lies. If they pay more, this is good.

Also, I’d like to make it clear that local busi nessmen are taking advantage in saying that because Vanuatu is a tax haven, we cannot possibly introduce this type of tax.

I think this is wrong. A tax haven is an opportunity for foreign companies, off shore companies. That’s what the tax haven is there for.

This is where the problem is; local busi nessmen think that because of this tax haven status, the government cannot intro duce any form of local taxation. This is wrong because tax haven conditions only apply to foreign, exempted companies which have their headquarters in Vanuatu but whose operations are somewhere else.

But local companies have their base here and are operating here, as well. They should be obliged to pay all forms of taxa tion that the Vanuatu government intro duces. ■