Cover Report
Molisa Faces Income Tax Questions
Should it or should it not be imposed?
Sela Molisa is a cheerful, liberal, engaging man and a veteran of Vanuatu's political struggle, begun in the 1970s, for independence from a joint French and British colonial rule.
He is a founder member of the Vanua'aku Party, which as the government, led the country to independence in 1980.
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He's been a feature of several past cabinets. Vanuatu's business community, local and expatriate, has long regarded him as being one of Vanuatu's most able ministers. Unlike some of his colleagues, he has never featured in devastating reports on government accountability, or lack of it, from the Ombudsman's office.
Molisa is currently finance minister, a post he's held before, and is once again being presented with an issue that has hung over income tax free Vanuatu for some years: Should income tax be imposed?
Some international finance institutions believe it will have to be, sooner or later. This advice horrifies Vanuatu's Finance Centre, as its tax haven business is referred to, since the country's attraction as such to international investors and businessmen would be harmed.
Vanuatu's governments have always been tight for cash. They have had a history of bad deficits and difficulty in paying bills. There is little scope left for further hikes of import duty, the main source of revenue in the past, since these would add to burdens already felt heavily by the country's mainly rural population.
They worsen Vanuatu's already worrying reputation of being an expensive destination for budget minded Australian and New Zealand tourists.
A value added tax (VAT) levied several years ago now rivals import duty as a revenue source. But the business community claims the administration of it is badly deficient and that the government's revenue worries would be eased hugely if all the VAT income that should be collected in fact was.
Molisa said VAT collection deficiencies are being remedied.
"We had some problems initially because VAT needs a lot of people to administer it. Now everything is computerised. It's not 100 percent yet."
People avoiding VAT? "Our people are investigating it so it could be true. At the moment we say it is not true because no one has come up with evidence."
An imported advisor is examining the scope for widening the range of revenue sources.
Molisa's indication is that he shares the view that income tax isn't a viable proposition.
"We have two reports, one by an Asian Development Bank consultant. I have read the reports and I am asking our tax experts.
"The problem we have is that we have only 14,000 workers. If you levied a 10 percent rate on their salaries it would not get us very far. I would like to see a tax mechanism similar to the Cook Islands, where you have tax on some sectors only."
Molisa says another obstacle to revenue raising is simple lack of growth.
"Almost every country in the region targets (income) taxation because their economies are performing better."
Since 1991 Vanuatu's performance has been pathetic and sometimes negative or virtually so. The projection for 2002, according to the Reserve Bank of Vanuatu, is minus 0.2 percent. "Our basic problem is political instability and infrastructure. We don't have the infrastructure. Our biggest business is definitely tourism. If we got another 10,000 to 15,000 more visitors a year, we would not have a budget deficit."
Molisa says it is time to eliminate many duty exemptions granted since 1980.
We lose 15,000 million Vatu every year from duty exemptions. That is one area we're looking at."
Molisa is entering another controversy; the debate over charges by telecommunications, electricity and water monopolies critics say stifle growth.
"It is a nightmare. We can do much, much better by lowering the cost of utilities. We hope to have a legislation before parliament before the end of this year."
