‘No taxation without representation’ was the rebels’ rallying cry during the American War of Independence. Business owners in Vanuatu are worried that they too may be asked to carry a greater tax burden without being allowed adequate input into the framing process.
Their fears aren’t entirely unfounded.
A committee to review Vanuatu’s tax structures has been working for some months now. Led by Finance and Treasury Director Tony Sewen, the Revenue Review Project Team has been tasked with reviewing tax revenue, non-tax revenue as well as the administration of taxes, duties and related processes. The team includes a member from the Vanuatu Chamber of Commerce and Industry.
Finance Minister Gaetan Pikioune announced in late April that the team would receive oversight from a governance committee, but did not specify its membership at that time.
Despite the involvement of the VCCI, a growing number of business owners are beginning to worry about just how public this consultation will be. Today’s letter to the editor offers a fair sampling of their questions and fears.
In fairness to the committee, there are still six months to go before a framework is to be finalised. And the government has been emphatic that any reforms will be revenue neutral at the outset. They insist that income will grow as compliance increases and the economy grows.
Of course, that doesn’t mean that business’ relative share of the tax burden won’t grow.
Opposition Leader Ishmael Kalsakau has been vocal in his insistence that we need to question the motivation of the reform process. Mr Kalsakau has said repeatedly that he feels Vanuatu’s tax haven status shouldn’t be shrugged of without serious consideration of the consequences. This point of view is shared by many in the offshore finance industry.
Some people have insinuated that this process is a thinly veiled attempt by the ATO to get another look under the skirts of Vanuatu businesses and investors. People point to the presence of foreign advisors assisting with the project.
That allegation is vehemently rejected by people close to the process. They insist that although funding for some of technical positions is provided by DFAT, that’s the end of their involvement. The request for assistance originated from the government of Vanuatu, and the contractors are exclusively at the beck and call of the reform team.
It is true that Australia’s Governance for Growth project has funded a number of technical advisory positions, which have been filled by experts from a number of nationalities. And—full disclosure—it is also true that this writer has provided technical services to GfG-funded work in the ICT field.
It is true, too, that Canberra would almost certainly welcome an end to Vanuatu’s tax haven status.
But the bottom line is this: Vanuatu’s domestic revenues have to grow. We’ve got no other choice. If it weren’t for cyclone Pam, we’d already have graduated from LDC status, and that means that future aid handouts might not be as lavish as before. Plus our debt is growing rapidly. All these roads and wharves have to be paid for.
Over the last week or so, a rumour has been circulating, suggesting that the reform team was considering a so-called turnover tax—that is, a tax calculated as a percentage of raw income.
This kind of tax has been looked at in the past by the Government of Vanuatu, and it’s plausible that it’s still on the table. Even though experts agree that it’s not the fairest or even the most productive alternative, it’s one that can be easily implemented. And for a country with limited personnel and resources, some feel that it might be the simplest way to go.
But the rumour that it could be set at 15% of gross income just doesn’t pass the sniff test. That’s bigger than the profit margin of a number of businesses. When it was first tossed around as an idea, the number being suggested was closer to 0.5%.
One context in which a turnover tax might make sense is if some percentage of the revenue were directed to the Chamber of Commerce.
The VCCI has already said it wants to review its structure, its mandate and its operations. And before any of those can be considered, the question of funding has to be answered. The organisation’s chronic under-funding and awkward structure have sometimes led it to stances that don’t reflect the interests of the entire business community.
But whatever tax and revenue framework ultimately gets endorsed, it’s clear that business owners at large don’t feel adequately included in the process. And given the rumours currently circulating, they’re definitely not being well enough informed.
That needs to be remedied. The Daily Post will be contacting Tony Sewen and members of the Governance Community to see how we can assist in widening this critical dialogue.