An International Labour Organization (ILO) Senior Wages Specialist, Daniel Kostzer, has proposed that Vanuatu needs a more evidence-based approach, a more sensible analysis to assist the Government
in its plan to implement an income tax and a corporate tax.
He made the proposal at a public lecture on the implications of tax on wages and minimum wage, held at the Grand Hotel, Port Vila yesterday.
“We need a household survey where we could get information around expenditure patterns of the household - how much households need to survive, how many members households have in this country, which are the incomes or sources of incomes of the households.
"That information is mandatory to have a sensible analysis,” Kostzer said.
“We also need a labor force survey to know where the workers are.
"If we tax flat rate across the board, whom are we taxing?
"Those tallies are needed in order to get a reasonable sensible analysis of where to start or where things are going to go.”
“We are taxing workers without knowing how much they are going to spend at their household or whether they are five members or one member. The base is completely unfair,” the ILO specialist continued concerning what he had seen about the government’s plan to implement the income tax.
He explained that in developed countries – Europe and the United States, they have the deductible part of their income depending on how many members of the household and depending on the income of the worker, which he suggested is an important issue to consider.
The ILO expert said that from the proposal that they had access to – it had every something that would make labour more expensive over time.
“Labour is going to become more expensive – it may go into prices, or technologies or may stagnate labour –they do not want to hire more workers because labour is more expensive.
"It may also induce under declaration of salaries, bonuses, even under declared workers as part of tax evasion, where a worker may agree with the employer to register as getting a salary under the tax threshold and the rest paid under the table.”
Mr. Kostzer said ILO does not say what should be or should not be done by the Government but present their vision, some of the constraints and some of the policies.
He pointed out that tax on wages can have long consequences with the supply and demand side of the labour market. The reduction in income may make people send into the market some of the members that will have future long term consequences even generationally.
“Some loosely taken decisions in a short period of time may have consequences for generations.
"If wages are reduced and there is not enough employment causing high unemployment and this will cause even some members of the households in school to leave school to find work which could lead to long-term consequences for their children and their children’s children.
“On the demand side, some companies may not be able to pay higher salaries to the workers and if they do they will increases prices to recover their costs.
"This may also reduce company expectations to hire new workers because labour costs are going to be higher or use technologies that may save work.
“In a country like this where you have a comparatively small layer of workers in a formal market that can be a problem,” the ILO specialist warned.
Commissioner of Labour Lionel Kaluat, the chair of the Tripartite Labor Advisory Council (TLAC) that organized the session said the decision to request an ILO representative to come was because in the last public consultation by Government on the plan to implement an income tax there was a mention of RSE workers that came up in the meeting.
He said that TLAC represents Government, Employers and Workers and whatever came out of this lecture will help guide the Tax Review Team in its work.
Employers’ rep Robert Bohn said the Vanuatu Chamber of Commerce and Industries was concerned about the decision of the Government to go ahead with a tax review policy because there was no full information or idea on an outcome available for Government to go ahead and make a decision to impose an income or corporate tax.
“We believe Government has no idea how an income tax will most affect people in the middle to lower part of the economy and Government has not taken this into consideration because tax reform will have a big impact on them in terms of its flow through on the economy.
“We are glad that a specialist from ILO is here to discuss implications of tax on wages and or the minimum wage.
"There has to be more consultation before government can go ahead on its plan because it will change the economy big time forever,” Bohn said.
Vanuatu Council of Trade Union’s Loreen Baniuri categorically stated that VCTU does not agree with income tax implementation in Vanuatu because they believe Government should not tax the “sweat of the workers”. She said VCTU was also concerned that not a full population of Vanuatu is working to be taxed.
“We hope government will listen to workers and employers that they do not agree to income and corporate tax and we asked that government find other means of tax but not tax workers’ sweat.”
ILO expert emphasized that ILO cannot tell government what to do but workers can ask them to come and help with information. After this lecture TLAC will issue a position paper on behalf of the three parties of TLAC to the Tax Review Team.