In the National Assembly-Finance minister explains new tax reforms |10 June 2009

The process is expected to be carried out over a period of three years starting in January 2010.

In the first session of the National Assembly’s new term yesterday, Finance Minister Danny Faure announced the principles and policies that will guide the reforms.

He said the tax changes are part of the economic reforms the country launched last year and are necessary so it can reap the benefits of those reforms.

They are also important in the context of the new economic system being set up, Mr Faure said.
He described the main objectives of the changes as being to broaden the tax base to allow for more businesses to pay tax, and to replace the current tax rates with a system that is simpler and more uniform.

The principles that will guide the tax reforms are to ensure the tax system is fair and to put in place a stable and lasting legal framework aimed at promoting local and foreign investment.

Mr Faure said the tax reforms will be carried out over a three-year period in line with the medium-term economic plan, which the government will explain in more detail in the 2010 budget.

The tax reform process will also include a review of tax concessions and exemptions, which is a complex but important procedure, he added. This will be done through a new tax code to be introduced in January 2010.

Mr Faure explained that all existing tax concessions under regulations such as the Tourism Incentive Act will remain in force until July 2010.

As a measure to broaden the tax base and increase self-compliance, the 40% rate of business tax will be reduced from January 2010.

Mr Faure stressed that in this reform process businesses with special import licences and based in the import zone must operate on the same terms and conditions as domestic importers.

It is for this reason, he said, that their concessions will be withdrawn as from July 2010.
Retail markup will be eliminated in the goods and services tax calculations as from January 2010, and from January 2012 a new and more comprehensive GST system will be put in place, he announced.

Mr Faure stressed that the existing social security system will remain in place to allow for the payment of benefits, but a personal income tax will be introduced.

It will replace social security contributions made by employees and employers and, as is the case today, employers will be responsible for making the personal income tax payments on behalf of their staff.

The introduction of the personal income tax will not affect workers’ salaries, as necessary legislation will be put in place to guarantee this, Mr Faure added.

Noting that the tax reforms will be complex, with various technical and legal aspects, he said the process will receive the usual help from partners.

Legislation that will guide the new tax system will be discussed and debated with the government’s finance and public accounts committee.

Mr Faure said the public will be given information gradually as the reform goes on, and more details of the new measures will be given in the budget for 2010.