Opening remarks of the Seychelles 2020 OECD Tax Policy Review report - Minister Loustau-Lalanne
March 12, 2020
Launching of the Seychelles 2020 OECD Tax Policy Review report
12th March 2020, Savoy Resort, Mahé
Colleagues from the Organisation for Economic Co-operation and Development: Mr Bert Brys, Ms Sarah Perett,
and Ms Gioia Demelo,
It gives me great pleasure to address you today for this very important launch; the Seychelles 2020 OECD Tax Policy Review report. After an extensive consultation process that was initiated initially in 2017, we are very grateful that you have again made time today to attend the presentation of the findings.
Ladies and gentlemen, you will note that today’s presentation is being done via video. The unfortunate developments in regards to the coronavirus has meant that our technical experts have been unable to fly to our beautiful Seychelles to do the launch in person. However, we are fortunate that the advancement in technology will still permit us today to carry out this launching, at least by video.
The engagement with the Organisation for Economic Co-operation and Development (OECD) was initiated in March 2019, when the Seychelles reached out for assistance to review our Business Tax regime to “Keep it Simple” or KIS as was outlined in President Danny Faure’s State of the Nation address of 2017. I also stressed in my budget speech for 2020, of the need to address the informal sector and broadening our tax base, so as to avoid over-burdening the formal sector operators and prevent unfair competition.
Overall, 78% of revenues in the Government’s budget are from tax receipts. Our Tax to GDP ratio have been projected at 31.6% for 2020 and this is set to decline insignificantly over the medium term. This ratio is on the high side. Government has been conscious of this fact since the start of the economic reform of 2008 and have continuously over the years stressed its intention to eventually assess the possibility of addressing this heavy reliance on taxation to finance the budget. The start of this assessment has been with the review of the Business Tax, as Government aims to level the playing field, reduce the tax burden on investors where it is present, and encourage entrepreneurship to flourish.
Business tax is approximately 18.5 % of the total taxes collected by Government. It is in fact the third largest tax out of the eight tax legislations that Seychelles has today, with Value Added Tax (VAT) being the largest source of income, followed by Excise Tax.
Government however, also remains conscious of the fact that it still needs to raise sufficient funding to sustain its operation and maintain essential public services as well as deliver on the various crucial social programmes as set out in our pathway for a sustainable and inclusive future, the Vision 2033 and National Development Strategy 2019-2023. Government spending therefore must not be affected by loss in revenues.
As we remain a stable economy that is very much dependent on external factors and reliant on imports, we are also faced with the challenges of maintaining our aging infrastructure, the rise of our aging population and the effects of climate change which needs considerable funding so that we can continue to provide adequate attention to these emerging developments.
The objective of the Seychelles Tax Policy Review was to ascertain how the performance of the country’s business tax system could be enhanced.
The process has allowed an independent, in depth and comparable assessment of the country’s business tax system to have been carried out, have provided a set of tailored tax policy recommendations, and ultimately allowed us at the Ministry of Finance, Trade, Investment and Economic Planning to build our capacity to analyse and improve the design of our business tax system.
In July 2019, the first series of public consultation started. We noted the valuable participation of our various stakeholders in a range of sectors, consisting of different businesses and associations notably in tourism, agriculture, fisheries, financial and accounting services, as well as in the arts and culture. In addition, the review also touched base with our fellow Government counter-parts also engaged in policy development in their respective portfolios. We remain appreciative of the valuable contribution brought to the table that will allow us to come up with solutions to address sector –specific challenges, whilst at the same time ensure that it does not compromise our tax design.
The strong deliberations and contribution from these stakeholder discussions have allowed the OECD to carry out a comprehensive overview and understand the various challenges being encountered in doing business, as well as how our existing differential tax regime affects businesses in various sectors, to which they will present to us shortly.
Our current business 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%, as well as a 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 R 1 million can either opt to be under the Presumptive Tax regime, where they pay 1.5% only on turnover. Alternatively, they can be registered under the normal regime, where they are exempted taxes on the first R150,000 profit and they start paying taxes at 25%, if their taxable income is between R150,001.00 to R 1 million, and graduate to a tax rate of 30% with a taxable income of above R1,000,001.00.
As for the high end sectors in telecommunications services, banks, insurance companies, alcohol and tobacco manufacturers, a 25% rate is levied on the first R1m profits and above that threshold these sectors are charged at 33%.
There is a need therefore to bring some uniformity, fairness and equity in our business tax regime. The need to harmonise the business tax rates in the coming years by applying a new business tax rate schedule that applies to all businesses is our top priority. We must also ensure that the design of our tax system is efficient. That is, that the chosen regime raises the required amount of revenue while at the same time minimize adverse economic effects.
Having a reform in our business tax regime will also allow us to gradually improve our administration and compliance costs. The Seychelles Revenue Commission’s budget for the fiscal year 2020 is R145.9 million and will continue to rise in the medium term. We therefore need to simplify the operations of the SRC and administer tax legislations, which are not overly cumbersome.
Moreover, the various tax incentives that exist today must be reviewed, as it generally adds to the complexity of the tax system and therefore add to the administrative burden.
For years, we have used the tax system as the mechanism to address challenges in specific sectors. In doing so, this has compromised the design of our tax system as well as its administration. It is our wish, that this review will allow us to appreciate the need of addressing sector specific challenges appropriately, instead of using the tax system to attempt to provide solutions to these challenges.
Ladies and gentlemen, as I conclude I need not stress on the importance of ensuring that everyone is made to contribute by paying their fair share of their taxes. The essence of fairness must prevail.
I would like to end by extending my commendation on the comprehensive work that has been done by the knowledgeable experts of the OECD. We are very much grateful for the amount of effort and attention that has been placed in this piece of work. Following this Tax Policy Review. Government will by the end of April 2020, announce a series of reforms aimed at broadening the Business tax base and realigning the tax rates.
I now invite you to hear from the OECD team all the way from Paris who will present the Review and wish you all a successful session.