Call for Vanuatu to focus on VAT not income tax

Transcript

Various tax options are currently being reviewed by the Vanuatu government to help increase government funds.

A recent review found the government needed more money to finance its activities.

The chamber of commerce is opposing a suggested new income tax and has instead proposed an increase to the country's value added tax by 2.5 percent, taking it to 15 percent.

Chamber member, Martin Hilaire, spoke to Indira Stewart.

MARTIN HILAIRE: It will be really costly to implement an income tax system. Each vatu that you're going to collect with income tax, it might cost half a vatu, a vatu or two vatu - it might cost more at first and for a few years, on the country, to implement that system than the amount that they're going to collect. So, just increasing the VAT will be very very easy. It's less damaging to the economy if you increase that than if you install an income tax. It's really - in Vanuatu, it's only five percent of the population that has more than a high-school degree. So it's really difficult to have skilled employees here. To have surgeons, to have dentists, to have lawyers, to have anything that is needed in a developed society to work.

INDIRA STEWART: Right, so there wouldn't have been many professional workers to tax anyway if there was a new income tax?

MH: Reports show that there's only 26,000 people that are actually registered at the VNPP, the Vanuatu National Pension Plan. So that's less than 10 percent of the population that uses the formal economy, that receives a paycheck. And that 26,000, that includes all the people that earn a really low wage. As soon as you earn more than 5,000 vatu, so 50 dollars US per month, you have to be registered at the pension plan. So there's really a small small pool of people that you're going to be able to tax for personal income. It's quite popular the income tax with voters. There's a possibility that government will decide to go ahead with that. It's a luxury, in my opinion, that Vanuatu cannot afford at this stage.

IS: In terms of increasing the Value Added Tax, do you think that you will get much of a pushback from business owners and consumers because products will obviously be more expensive?

MH: It's really not popular to increase income tax and to increase VAT either. There's also other propositions to raise the land rent and to raise the fees, the business license fees, the work permit fees of 20 percent. It will be bad if we kill the chicken that lays the eggs. It has to be done cautiously and with the right mix. It's not about raising the VAT to 15 percent. It's more about, income tax is not a good solution. Please look at all the options.