The Government and its agencies have been working for a long time on developing a comprehensive set of reforms for Vanuatu’s revenue system. These reform efforts have included the review of current taxes, modernisation of revenue administration and non-tax revenues to identify areas where tax policy, law and revenue administration may be reformed or modernised to support sustainable economic development and achieve higher living standards for Vanuatu. The Minister acknowledges the work of the Committee and is also thankful to the public at large who have participated and contributed in the consultations and also provide written submissions for the committee and governments review.
The Minister stresses, that in making its decisions, the Council of Ministers took into account all the recommendations of the Revenue Review Committee as well as the pressing need for revenue to fund key Government commitments towards the provision of essential services to the community. In particular, the Government wants to ensure that Government’s expenditures are well managed and wastage is minimized. The Minister said “if the Government raises money from taxes and other fees and charges, we must ensure the money is collected and spent wisely and efficiently.” The Minister also emphasised the need to have a fair tax system that promotes Vanuatu’s economic growth into the long term.
The Minister affirms that the Council of Ministers have accepted the recommendations of the Report and weighs the pros and cons of each option and has principally agreed to introduce income tax at a time to be determined by the Government. The proposed reform, including modernization of our tax system and a coordinated review of the way fees and charges are collected will contribute to Vanuatu’s long term economic stability and growth. The Minister acknowledges the concerns raised in the media and social media pertaining to the decision of the Council, however he stress that maintaining the status quo is no longer an option for Vanuatu. Vanuatu will have to adapt to meet emerging challenges such as; rise in population, growing threats of natural disasters and climate change, security threats, poor health services and inadequate education facilities and teachers.
The Council of Ministers has principally agreed to the introduction of income tax in the near future subject to are number of core economic reforms to be implemented. The Government’s expenditure commitments in 2018 include several essential commitments, such as: subsidizing tuition fees for Year 7-10, funding for Early Childhood Care and Education (ECCE) and teachers’ salaries, increased expenses on healthcare, increased loan repayments and inclusion of Government Remuneration Tribunal’s (GRT) package. These essential commitments will exert significant pressure on existing Government revenues. The decision to increase VAT from 12.5% to 15% from January 1, 2018 is a temporary measure to sustain the current commitments of the government until such time the government introduces income tax. If and when the government decides to introduce income tax the VAT rate will be reduced back to 12.5% including the repeal of the Turnover tax, repeal of the Rent Tax, reduction of import duties, and reduction of other fees and charges.
The Ministry of Finance and Economic Management is currently working with the State Law Office to implement that decision of the Council of Ministers to increase the VAT rate from 12.5 per cent to 15 per cent. The initiatives announced today will help promote stable long term economic growth as well as improve government revenues – both key components of the Economic Pillars of our National Sustainable Development Plan 2016 to 2030. Ministry of Finance and Economic Management in association with concerned agencies will make all necessary changes and preparations to implement the other decisions of the council of Ministers to ensure that wastage is minimized and compliance is strengthened.
The Minister concluded his statement by stating that “the introduction of income tax and related reforms, accompanied by the measures announced today will help raise the essential funds for Government operations in a way that will be both fair and efficient. I urge business, employers and employees to work together with the Government to make these reforms a success for our nation.”