Transcript
The parliamentary secretary to the Prime Minister and Finance Ministry John Sala says a government analysis has indicated a 17 percent income tax rate could apply to those earning more than 750 thousand vatu or six-thousand eight-hundred US dollars. The MP concedes that income threshold would mean just three percent of the population would be paying the new tax, but says the government has to grow its revenue base to support services.
"The government is under funding vital social services such as education and health, and also its current external debts and there's a lot of areas that need government financing so the government feels that it has to find other revenue streams."
But the Opposition is asking how such a small percentage of the population can pay for services for the rest, and what benefits people will gain in return. John Shing, a political advisor to the Opposition leader Ishmael Kalsakau, says the government should consider other options.
"Let's explore indirect forms of taxation first. For example strengthen VAT, the value added tax legislation, strengthen compliance, maybe there could be a possibility of increasing VAT rather than introducing a new form of tax."
John Shing says the Opposition believes global pressures are behind the Government's proposal.
"Vanuatu will be graduating as a LCD country, a least developed country in 2020, which effectively means the government will not be able to receive grants, loans and technical assistance that currently the government enjoys. Also there is pressure from the OECD because Vanuatu is a tax free jurisdiction, and attracts a lot of foreign money which has been regarded as money laundering or terrorist funding."
The director of the Pacific Institute of Public Policy, Derek Brien agrees Vanuatu's tax free status has meant it's been caught up in a shift in attitudes towards donor recipient countries.
"When we are talking about aid and development financing the conversation has shifted very clearly towards countries that receive aid taking measures to be seen at least to be increasing domestic revenue. Vanuatu is definitely caught up in that because of the pressure globally on clamping down on tax avoidance."
Derek Brien says the government's biggest issue is the pressure it's under to pay back debt incurred through investments in infrastructure projects.
"The point of the revenue review is to look at servicing the debts when they become liable for payment in the next couple of years. It's not about increasing government revenues to improve service delivery."
Derek Brien says like other Pacific countries, Vanuatu has been tempted to take on huge amounts of debt from donors for ill-advised projects that have brought little economic return. He says a conversation should now be held with donors about debt re-servicing, rather than burdening people with more taxes.
"Part of the consideration is looking at wiping off some of this debt because one of the critical issues is we have a population that's still struggling in the aftermath of the massive cyclone a couple of years ago, and on the back of that was the El Nino inspired drought. This is precisely when we need to be looking at measures to grow the economy, rather than shrink the economy."
The Government says the income tax proposal is still open to public consultation as part of a wider revenue review, but the opposition says the decision to introduce the tax has already been made.
