Business community reacts to budget address | 19 February 2021
Minister Naadir Hassan’s 2021 budget address on Tuesday, his first under the new government, has received mixed reactions from businesses interviewed by our newspaper.
Although these reactions are not representative of the entire business community, it provides a better insight into the budget, through the eyes of businesses and entrepreneurs.
The businesses interviewed were asked for their take on some of the announcements made in the budget that directly impact or involve the private sector such as tax reforms, reduction in business tax and investment opportunities in key areas such as fisheries, agriculture, tourism, financial services and the digital economy.
A. G. Yakub, businessman and ex-IMF budget advisor:
“What I like most with this budget is that the minister and his team have put the national interest before that of the Linyon Demokratik Seselwa (LDS) party’s interest. To me, this is a sensible budget. My first impression is that, en gros, this budget responds to the hard times caused namely by the health crisis and external factors, and it also identifies areas for additional capital investment to boost the economy. Furthermore, it takes into account the depreciating Seychelles rupee and likely increases in fuel prices, at least in the short-term.
“It is important to look at Minister Hassan’s 2021 budget from the perspective of macro-economic management. The fact is that as a heavily import dependent country we are back to being highly vulnerable to a balance of payments crisis today, in the face of a marked reduction in our overall tourism earnings. In plain language, the economy has to contract in terms of economic growth and we have to exercise caution with our limited resources. Until the global economy turns around, we have to be realistic and suppress total spending economy-wide. This would be an ideal time for us to intensify our efforts in growing our own food, promoting local value-added products and consuming more ‘made in Seychelles’ products where possible.
“Like most businessmen, I welcome the reduced business tax regime and the planned abolition of the corporate social responsibility (CSR) tax; these are steps in the right direction, almost serving as a fiscal stimulus for the private sector. I hope the planned restructuring of the various public agencies and ‘bloated’ government departments will achieve efficiency and synergy. There’s a lot more that can be said about the budget but time is of the essence.
“Let me therefore just finish by saying that in this age of technology and the common use of PowerPoint presentations (PPP), I would strongly recommend that from now on, the budget address is delivered using PPP showing comparative tables and broad analysis. At the same time, on the actual date of the presentation, I’d like the ministry to issue a little booklet after the Address to be called ‘The National Budget at a Glance’ to the National Assembly members, the national press, the diplomatic core and any other interested parties, whereby the salient points and planned policies are outlined in the booklet for the next fiscal year.”
Keith Andre, businessman/chairman of the Fishermen and Boat Owners Association
“I welcome certain announcements vis a vis modernising the SRC, where emphasis has been placed on improving tax collection through improving compliance. In the past SRC had spent a lot of money and resources in chasing after tax when it should be encouraging compliance and allow the money to come in willingly.
“When it comes to the business tax, I’ve read that the minister said that discussions are yet to be completed with the fisheries and agriculture sectors. Actually, we had various meetings prior to the budget address – even with the previous finance minister – where we, in the fisheries sector, said that they need to simplify tax collection for our sector. There have been instances where companies in this sector have found it hard to meet their tax obligations. We had proposed to the Ministry of Finance in 2018 that the government collects an indirect tax from the fisheries sector in the forms of an increased license fee.
“We argued that this should be done in a reasonable format, whereby the license fee of a fishing vessel is based on its size and capacity; because it is not normal for someone in a small fishing boat to pay the same amount of license fee as a bigger vessel that is taking out more resources from our waters. This proposition has been on the table for quite a while and we are still waiting on it to be formalised.
“We made it quite clear that fishermen and those involved in the fisheries sector should not hitch a ride in the society, when everyone is contributing their share while we are not. We want to contribute but we want it to be a reasonable contribution, because the fisheries sector is one of the few production sectors in the country and overtaxing us will see less capital for entrepreneurs to invest. Given that the government has highlighted that there are opportunities for growth in this sector, we hope that the government engages with us once again to find a suitable method for taxation.”
Ramu Pillay, chairman of Pillay R Group
“CSR tax abolition is a very good step. CSR is something one should take as a personal responsibility, it shouldn’t be something that has to be enforced by the government, but I am hoping that there are many who are interested in contributing to the community and will continue to provide.
“Business Tax reduction is also a good initiative. With the economy going through a difficult phase, tax reduction can create some form of hope for many. It will provide incentives to invest savings in other ways, such as new technologies and resources.
“As for the other sectors, there are indeed opportunities to tap into. For a long time we have prioritised tourism, though fishing has also been an important pillar of our economy. Covid-19 has taught us a lesson that we should not be dependent on just one sector, but find other ways of diversification. Fishing is one such industry that has vast potential in our economy. We should further explore this sector to optimise its full capacity, and by innovative and intense marketing techniques this can be achieved. The Pillay R Group welcomes these opportunities and are thinking along that line of how to enter at least one of these sectors. Further subsidies with interesting packages from the government to these industries like the fishing industry shall speed the process.
“Going forward digitisation is very crucial to an economy. This can be witnessed from the changes in operations that Covid-19 had led to, where global economies are now running on digital platforms like Zoom. Knowing the benefits of digitisation, it’s easier to implement it in such a small economy like Seychelles, further improving the efficiency of the economy.
“Overall the budget is good. Though the full effect of government budget shall only be known after the mid-year review, we hope that with everyone’s support to the ongoing vaccination programme, we can expect the tourism sector and all other businesses to recover and attain the pre-Covid level as early as possible.”
Ingrid Sinon, businesswoman and economist
“In my opinion, the proposed tax reforms are much needed in such dire economic times especially the idea that taxation is on profits rather than on turnover. However, the tax reforms should be done on a more holistic basis by also assessing the indirect taxes such as VAT and other 'hidden' taxes. Such an approach will undoubtedly improve the ease and cost of doing business.
“Nevertheless, I am mindful of the fact that in the absence of alternative sources of revenue to replace lower tax revenue, the government may run larger fiscal deficits which may be financed by high interest government debts.
“As for areas for investment, the availability of data (both historical and predicted) is a must as investors can only make informed decisions based on accurate and reliable information. Data from market research and studies with estimated costs should be published to guide investors in ascertaining the cash flow requirements of such investments and whether or not these are profitable ventures. Forward looking economic data should also be made available to ensure long run sustainability of any future investments and perhaps this is where Cutting-Edge Consultancy may come in.”
The Shreeji group:
“There is a need for a multi-year approach to the economic situation. The contractions growth, negative fiscal outcome of unprecedented level, shows us that we have indeed been set back worse than where we were at the time of the 2008 reform. We are indeed in the worst economic depression to hit Seychelles in modern times (post-independence). The IMF has recognised that it is the worst economic situation in post-World War era. In other words, a major economic reform strategy and plan is required to move us, a micro-economy that is entirely depended on the external world.
“The citizens must be placed in a mindset of a long haul ride, that is going to be bumpy and painful, requiring that each individual contribute with their fair share of hard work and patience, while carrying hope, belief and hold trust that the government would make traction on their plans to get the country back on its feet. We are of the view that the tone in the budget is a bit ‘too straightforward’ giving the feeling that government has the tool-kit for getting matters under control.
“With regard to the fiscal adjustment, i.e. from 15% deficit in 2020 to 2% in 2023, a 12% adjustment in a post-pandemic and economic crisis era (that is a 24 months roll-back), we feel that this is a very short time in economics and we in the private sector should be concerned. Size and timeframe must be planned together within a macroeconomic framework. More haste and less pace may be required as too rigid and rapid an adjustment may result in social strife, due to economic hardships that would ensure.
“We must bear in mind that, at present, we are predicting based on actuals and forecasts, at a time when we are still learning about the virus – it is mutating and confusing scientists. How well the Seychelles economy performs will depend on local and worldwide vaccinations and the virus evolves.
“The Shreeji group supports that the public service is too big and we believe that removing inefficacy and bringing new efficiencies are key elements of a modern government. The budget projects some large expenditures, against expected revenues, and the budget do not adjust. For high-income countries like ours we are very often recommended to mobilise domestic revenue.
“At the same time, care must be taken not to overtax. We would support broadening the tax base, have a functioning low rate that encourages everyone to pay.
“Some of the questions we in the private sector will be asking moving forward are:
- How effective are current regulations and the IT system to ensure tax evaders or avoiders are quickly apprehended and punished?
- Are government taxing in the right manner? We believe in reducing rates when too high, and for this we appreciate the government has committed to bringing down the corporate income tax (business tax) rates. We are still of the view that this should apply to all sectors and tourism should not enjoy a separate rate.
“We are looking forward to an equitable tax system for Seychelles. We would welcome a more in-depth reform which addresses tax regulations, puts in place tax regimes ‘fit-for-purpose’, eases compliance and payments, and ensures that everyone pays their fair share.
“Our group is of the view that debt sustainability is important to remain healthy, to allow the country to resort to credit if needed. The debt-to-GDP is certain to surpass 100% in 2021 – a worrying figure. The acceptable debt-to-GDP rate for developing countries is 60% and 40% for developed countries.
“More information is needed on debt sustainability, as unsustainable debt levels have long term impact for the country’s people and future generations. A key condition of the 2008 economic reform was a fiscal consolidation, where public debt reduction was a target, similarly to yearly fiscal surplus target. Debt reduction strategy should perhaps be a subject for additional explanation. We would certainly welcome more work on the tax, particularly closing the loopholes in the value added tax (VAT) for instance, reducing the long exemptions lists, address the many revenue deficits.
“Much of the fiscal policies we have witnessed so far have been of a relief nature rather than recovery. We do appreciate the relief schemes for businesses set up by the Central Bank of Seychelles (CBS), which will continue through 2021. How effective these relief schemes have been however needs to be further explored.”
Christopher Gill, chairman of Praslin Business Association:
“I am not satisfied with this budget. I believe the minister is doing a hack job. The budget is not, it is merely a dream targeted at safeguarding the salaries of those in the public service. There has been nothing in it to jump-start the tourism sector, which islands like Praslin and La Digue are solely based off. There is no IOT or offshore sector for people on Praslin to tap in – this is all they have. Tourism establishments have closed their doors while some are shutting down completely. FA4JR will be cancelled and the minister is asking people to go work. But where will they work when there are no jobs?
“The budget does not talk about how the tourism-related businesses can re-enter the economy. There has been no advance booking, I don’t know if they think tourists will start disembarking on the airport as from March. The government has committed to subsidising Air Seychelles, once again, when it has done nothing aside from collapse. We should be investing money where it counts.
“The minister also did not touch on VAT which is increasing because of the hike in foreign exchange to the rupee. A euro used to cost around R14, now it is R26. Importing items for public consumption on this exchange rate means that we have to pay more VAT, which is passed on to the consumers and causes an explosion in prices. It is a shame that the government has no courage to reduce VAT. A reduction on business tax is not what we are asking for and abolishing the CSR has neither here or there, because it is less than 1%.
“There are about 36 large companies in the banking, telecommunication, insurance and manufacturing sectors that make huge profits. The taxes for these companies should remain the same; they should even have their own category when it comes to taxes. Meanwhile hotels for instance should see lower taxes because these are high-maintenance sectors; hotels need to regularly invest their policies in refurbishment and redevelopment – something that can happen every 10 years.”
Compiled by Elsie Pointe