Seychelles 2020 OECD Tax Policy Review recommends business tax on core sectors |13 March 2020
Minister Loustau-Lalanne addressing the gathering at the launch ceremony yesterday (Photos: Jude Morel)
High-ranking officials and representatives of private sector entities assembled at the Savoy Resort & Spa, Beau Vallon yesterday for the official launch of the Seychelles 2020 OECD Tax Policy Review, an event co-hosted by the Ministry of Finance, Trade, Investment and Economic Planning and the Organisation for Economic Co-operation and Development (OECD).
The publication, which is part of OECD’S Tax Policy Review series, comprises three chapters, namely, an overview of Seychelles’ key economic and tax challenges, comprehensive assessment of business tax system and simulates the impact of different business tax reform scenarios, based on business taxpayers’ microdata and a third chapter dedicated to improving the design of non-business taxes, all of which were presented through a two-hour interaction via live video link (on account of the security measures in place against the COVID-19 pandemic) with representatives of OECD Bert Brys, Sarah Perrett and Gioia de Melo.
Presenting the findings of the report, the team also set out the recommendations for tax reforms, the majority of which echoed the key points of Minister for Finance Maurice Loustau-Lalanne’s opening address, in which he asserted the need to address the informal sector and broadening the tax base, so as to avoid over-burdening the formal sector operators and prevent unfair competition.
“Our current tax regime differs per sector and also discriminates against certain sectors. For instance, the tourism, agriculture and fisheries sectors, enjoy the lowest business rate at 15 percent, as well as tax free threshold on the first R250,000 of profit. On the other hand, other small businesses that are sole traders with a taxable income of less than R1 million can either opt to be under the Presumptive Tax regime, where they pay 1.5 percent only on turnover,” Minister Loustau-Lalanne stated and elaborated about the preferential tax regime that is currently in place.
“There is a need to therefore bring some uniformity, fairness and equity in our business tax regime. The need to harmonise business tax rates in the coming years by applying a new business tax rate schedule that applies to all businesses is our top priority,” he asserted.
According to principal secretary for Finance, Damien Thésée, the government is yet to take any decisions on the recommendations and will update the public in April through a formal announcement.
Among the recommendations were broadening the tax system to core sectors as well, including agriculture, fisheries and tourism, on account that the tax burden on such sectors is not particularly high. The report also recommends that the government invest in training and development and capacity building of the tax administration to address the lack of competent tax professionals on the labour market.
Reforms were also proposed relating to personal income tax, a recommendation for the medium to long-term to eliminate possibilities of overpaying and underpaying, and as a means by which the government is afforded more room to provide targeted support.
Other medium to long-term recommendations include the introduction of a tax on online transactions.
“In terms of introducing Value Added Tax (VAT) on online transactions, this is a measure that we will have to consider and it will not be a measure that will be introduced immediately. When transactions take place online, revenue is lost in terms of transactions that would have taken place locally, from which revenue would be generated from Business Tax. So, as businesses evolve, we need to evaluate and weigh up whether to start charging VAT on online transactions. There are already models that exist but we have to analyse our context,” PS Thésée explained.
PS Thésée assured that the aim of the exercise and recommendations is not to increase taxes and thereby increase the cost of living or cost of doing business in Seychelles, but rather to simply realign the regime across all sectors and broadening the tax base through business tax reforms.
Even through introducing recommendations and the new business tax rates, which reflect a reduction as compared to the actual tax rates for most businesses, the economy will take a blow of R0.3 million.
“In order to cover this loss in revenue, we need to put in place other measures, for instance in relation to companies whose headquarters are based overseas, so we can collect a contribution from them since they repatriate all their money, as well as exemptions that certain sectors benefit from, that enhance its costs. The aim was not to collect more revenue from business tax, but to level the playing field, reduce the burden on those paying the highest, and find out where there are abuses, loopholes, too many exemptions and cut back on them, address the informal sector. It has been highlighted at consultative meetings that many businesses are not registered and therefore not legal entities and we need to collaborate with other partners, including the police and Ministry of Tourism to find ways to formalise such businesses so they too can contribute towards taxes,” PS Thésée concluded.
The engagement with OECD was initiated in March 2019, following an extensive consultation process which commenced in 2017, with the first series of public consultations in July 2019.
