National Expenditures Needs Tightening Before Income Tax

THE GOVERNMENT MUST tighten up more of public sector expenditures before we can begin to think of introducing Income Taxing in Vanuatu.

As the consultation process continues on this bold government initiative that has got a lot of heads turning we think it is our duty to put something forth on what we think are some necessary steps to take before this ideas becomes a part of Vanuatu’s legal framework.

First of all, if the income tax is going to become a reality then the government, especially the public service sector, needs to effectively manage its collections and spending’s otherwise corruption, or lack of proper management, will reduce the peoples trust in the system.

According to the estimates provided by the Revenue Review Team who are doing the consultation, if the income tax was introduced a huge surplus of revenue will be added into the national treasury.

This will, of course, add surplus to the national budget. But how well will the surplus be managed? That is the challenge that needs to be solved. Because, if we have two to three billion more extra cash then there needs to be a transparent and better management system in place so that people can trust and know that their monies are spend the promised way.

It is of deep concern that tax money, because it is in the billions, could be siphoned away in small amounts into someone’s pocket, or towards unnecessary spending’s.

The administration of the tax system should be fully equipped to fight corruption because such systems are vulnerable. For instance, just this month in Sierra Leone, West Africa, an assessment was made on their tax system by the Budget Advocacy Network (BAN) “with a view to highlight key areas of concerns, reform and opportunities to light the darkened shadows that clouded tax regime in Sierra Leone.”

The BAN is a united front of several NGO’s including Transparency International Sierra Leone (TISL) and its purpose is to ensure “a greater inclusiveness in the budget process, increase access to information and improved responsiveness geared towards achieving gender sensitive and poor budget and programs”.

And in light of this ‘darkened shadows’, this is what their Commissioner of the Anti-Corruption Commission said; “The absence of a fair and equitable tax system breeds corruption…tax management is an attractive sector for corruption to take place as the opportunities and incentives to engage in illicit activities are abundant”.

Moreover, in 2014 the International Monetary Fund (IMF) collaborated with other organizations to address tax administration through an initiative called the Tax Administration Diagnostic Assessment Tool (TADAT) because tax collection “is a central function of government, and weak tax administration can compromise development, growth, and trust in government. Like all government agencies, tax administration face strong public demands for efficient service delivery, operational accountability, and transparency”.

Convincingly, if the tax income is implemented then the administration of those taxes should be corruption-proof.

Furthermore, there are several things that are on the list that needs to be tightened, and one of them is the effectiveness of internal control for non-salary expenditure of which the Vanuatu Public Financial Management Performance (VPFMP) Reports of 2009 and 2013 simultaneously rated a ‘C+’.

In 2014 an economics expert from the University of the South Pacific estimated that approximately over 50 million of unbudgeted vatu are spend on fuel, maintenance, and the purchase of G-vehicles annually.

In that same year, about three months after the 50 million vatu estimation by the economics expert, the Ministry of Finance recorded an increase of expenditure “due to the intrusion of unbudgeted items during the beginning of this year” – Vehicle-replacement cost VT 21.7 million (or 185 per cent) more than what was budgeted for at VT 11.7million, according to the 2014 Half Year Report.

CLICK HERE to visit the Vanuatu Ministry of Finance website.

Strategically, was the unbudgeted VT 10 million spend on the vehicles constructive? Or should that money been used to pay hundreds of students school fees?

The government needs to show more commitment if it wants to tax working citizens by effectively controlling its expenditures, especially those that are not budgeted for. This also means that it is important to avoid political gratuity payments, which according to a Transparency Vanuatu report in 2015, increased by a staggering 18% since 2002.

Furthermore, the VPFMP Report identified that “increased payroll costs and unbudgeted expenditure have raised expenditure levels. In 2009 and 2010, actual revenues were also significantly less than anticipated due to a combination of ambitious forecasts, changes in trade agreements and weak enforcement”.

But it must also be noted that those were reports that reflected the works of previous government, and must not reflect the current government. However, according to national financial information gathered for the 2016 half year report several services have already exceeded their budget limits by a high thousand percent.

The big question to ask ourselves is; if we are trying to raise revenue to upgrade public services and to pay off loans then why are we spending more than what we budgeted?

According to information from the Ministry of Finance the government of Vanuatu has actually spent over VT190 million vatu of unbudgeted funds in the first half of this year on additional vehicles, vehicle hire, acting allowances, court costs, official entertainments and several more.

To conclude, there are mechanisms that needs to be tightened up and unnecessary spending must be stopped because these are the monies that should be used to increase access to areas like the education, communications, health and other services.

It is also important to be mindful of corruption in this sector. In a Working Paper (Tax System: A Channel for Corruption – Or a Way to Fight It?) published by Transparency International in 2015 several main entry points for corruption in taxation were pointed out;

Reporting taxes: This can happen with or without the involvement of tax collectors and through the use of incentives and resources to exert influence (legal and illegal) to allow for inaccurate reporting (e.g. of company turnover and/or expenditures and/or individual earnings).

Collusion: Tax officials take advantage of their authority to issue tax exemptions or levy lower tax rates for individuals or companies, creating a context of policy capture.

Patronage: Ties of community or kinship may favour or penalise certain constituencies, such as by lifting certain exemptions, imposing additional levies, or unevenly enforcing tax compliance.

International tax fraud and evasion schemes: Opaque global financial systems exacerbate the problem through legal and illegal channels and often use tax havens as part of the process. Weak legislation, legal loopholes and the breaking of laws often permit companies not to pay taxes where the profits are made, and instead shift these monies to other jurisdictions with lower tax rates. As the World Bank President recently stated, such company actions are a form of corruption.

All of these issues can be classified, either directly or indirectly, as forms of tax evasion.

Overall, Transparency Vanuatu recommends that existing policies need to be tightened to protect national revenue and enforce better management of public assets because they cost a lot of money. And if we are to pay taxes we would want to know that our monies will be put into raising the quality of life in Vanuatu and not to pay off unnecessary subjects, and for this to happen the government has the important task of convincing the people to trust that this proposed system will work.

Lastly, Transparency Vanuatu wishes to commend on the string of public consultations that has been undertaken by the Revenue Review Project Team, it is a challenging task, it consumes energy and time, but it must be done. Everything that will go through parliament must go through a participatory consultation process so that everyone is aware of, and participates, in shaping Vanuatu’s future.

 

 

Government Needs To Strengthen Statutory Bodies

OBVIOUSLY, CHALLENGES TO PROPER MANAGEMENT PROCEDURES and unlawful actions continue to affect the economical state of our country today.

As a developing country that largely depends on tourism for income Vanuatu has suffered unavoidable, and preventable, economical loses since 2015. TC Pam was unavoidable, but an unmaintained airport runaway is , very much, preventable..

Earlier this year, three Australian and New Zealand Airlines cancelled their services to Vanuatu, blaming the poor conditions of the Bauerfield International Airport.

Researchers from the Lowy Institute’s Melanesia Program and the Development Policy Centre based in Australia recently published an article a couple of weeks ago on the airport issue. They estimated that an amount of $40,752,772 (equivalent to around VT4, 308,380,000) may have been lost due to the decline in tourist numbers to Vanuatu since 2015, and from that amount an estimated $33,873,016 (which is equivalent to around VT3, 581,060,000) was revenue lost from air visitor arrivals alone. The estimation was calculated on a 2007 baseline study.

The Bauerfield International airport is evidently a major source of income for Vanuatu. It is therefore rather unfortunate that we now have this national income generating mechanism labeled as unsafe, it reflects the fact that proper foresight into its maintenance had been overlooked and that the management’s priorities had been allocated elsewhere.

According to the article by the research institutes mentioned earlier, the “Bauerfield airport, the country’s main international airport, has been in need of repair and rehabilitation for years. Airports Vanuatu Limited, which is responsible for management of the airport, has been unable to fund major airport works using the (insufficient) fees it collects — in part due to its management of several other (loss-making) airports in Vanuatu. Poor management and a politicised board have also been a problem at various times. As a result, Airports Vanuatu Limited has been reliant on government funds (or donor funds negotiated by government) for major rehabilitation work.”

“Poor management and a politicized board,” this phrase should ring a bell somewhere loud enough to bring more attention to this long time delinquent that desperately needs to be fixed for economics sake.

This is not the first time that the management of the airport has been described to being of such a state. When summoned by the Parliamentary Public Accounts Committee (PAC) in 2015 the management of the Airports Vanuatu Limited showed up with no proper financial and audited reports. The AVL financial reports were well overdue since 2012, “it is a disgrace” commented the PAC. (Read more: “You Have Failed.”)

The deadline for the submission of those long overdue financial reports were rescheduled at the end of June after which the Office of the Auditor General had to report back to the PAC on the financial reports progress and contents. However, by the end of June last year the government then, having been tightly tied up by political movements including the bribery saga, further investigations into the overdue financial reports by the PAC ceased to proceed.

Transparency International Vanuatu understands that the Salwai Government has committed the repair of the Bauerfield Airport in its short term 100 day plan and long term plans as well. The government of the day should learn from past actions, adjust their strategies, and make better informed decisions as to better lead Vanuatu’s vital revenue generating institutions forward.

We should also be cautious that there have been in the past several fabricated starts to rebuilding or rehabilitating Vanuatu’s airport. Each new government appeared to have its own opinion on what should be done. Unfortunately, none of those ‘opinions’ have actually materialized that we are aware of.

Talking about ‘fabricated starts’, an example is the 2013 deal with the Singapore-based company called the Vanuatu Trade Development, which surprisingly had no aviation experience. The deal was estimated to cost around US$350 million. Gradually, after a successful motion of no confidence the new government made sure that the deal was discarded and a loan agreement of US$59.5 million was arranged with the World Bank, but that deal was also discarded when a new government took power after another successful motion of no confidence.

And yet again another ‘opinion’ was struck with a Shanghai-based conglomerate to fix and upgrade the International Airport. Of course, this deal never solidified because another government stepped in, it was a period of political uncertainties.

Political instability ensued. Bribery was involved, and as a result 14 former Members of Parliament were jailed for corruption in 2015.

It must also be noted that the Vanuatu Trade Development company involved in the airport deal is of the same name as the one that recently had 804 expired cartons of cigarette destroyed by the Customs Department. “The Customs Department says the company allegedly owes the Vanuatu Government more than Vt400 million unpaid tax plus interest,” reported the Daily Post on Friday last week.

Transparency International Vanuatu, as one among the few active organizations that endure to advocate against corruption, must continue to demand that the qualities of transparency, accountability, honesty, and fairness be fully expressed by the Vanuatu Government in its initiatives to correct matters that are of national interest, or when developing new structures.

In this same sentiment, if political interests is the cause for a lack of focus in the Airports Vanuatu Limited then it is clear that political interests must be removed. Likewise, if there is a lack of adequate human and material capacity then it is clear that these areas must be strengthened. It is better to prevent this unfortunate incident from happening again than to have to relive it again.

Remember, any structure that accommodates corruption is already a failed vision.

Picture Source: https://hbr.org/2015/01/how-the-u-s-and-india-can-strengthen-their-business-ties

 

 

 

 

TIV Calls On Politicians To Focus On The Economy Not Themselves

A mother who cooks at the Port Vila Market House shares her views on political instability


HUNDREDS OF PEOPLE have lost their jobs since cyclone Pam, thousands of people are still struggling to rebuild their livelihoods but their elected leaders have spent the last few weeks focusing on the political power struggle. This week business and NGO leaders have highlighted the size of the challenge to rebuild Vanuatu’s economy after the cyclone and warned that political instability is undermining those efforts. Representatives from agriculture, tourism and other sectors of the economy spoke about the opportunities and challenges they see for Vanuatu’s economy at a PACMAS journalism workshop, held at the Reserve Bank.

For most, the sudden political changes and instability in Vanuatu continues to place doubts on the prospects of a steady recovery in economic growth. “The first challenge is to stabilize the government to get some VAT into the economy”, said Bryan Death who is the Tourism Councillor on the Vanuatu Chamber of Commerce. He said that the focus of the government at this point of time is “to get more tourists into this country, getting some VAT back in the coffers, and getting some money into the government general revenue stream”.

Bryan Death

Bryan Death

With the popular high revenue earning resorts like Irikiki Island Resort and the Holiday Inn probably closed for the next 9 months, there is a lot of work on the government’s plate to think over how to stabilize the fragile economic situation. Mrs Adele Aru from the Tourism Department explained how changes of government make life difficult for civil servants.

 “When there is change in the government, we shift.  We change our perspective, and

Adele Aru

Adele Aru

it makes us lose focus” she said.

She is not the only one describing the situation as – lose focus. Even President Lonsdale referred to loosing focus in his – “The Missing Pages of our History” speech early this month in his opening address of parliament. Unfortunately 3 days after his valuable words rang loud and clear in the chamber the government changed, and then a day later another motion was lodged.

Mr. Francois Kavirere from the Agriculture Department echoed the same sentiment, “our farmers are overtrained,” he said year after year the government through the public service trains the farmers. “But what are we doing from our end to support them?” Mr Kavirere believes we should be able to provide sufficient support to lift their status from being just a regular farmer to a renowned and established business farmer, who can provide more than just a free lunch for their workers. It is time for “no more free lunch” he said.

Francois Kaivirere

Francois Kaivirere

Commissioner of Labour Lionel Kaluat told how labour mobility has offered opportunities and livelihoods to thousands. With Canberra having lifted the cap on the numbers of seasonal workers allowed to travel to Australia each year he said opportunities are growing. But his main focus now is on food security.

The returning seasonal workers from New Zealand and Australia need to get involved in food security he said. “After four to five seasons in the scheme…workers need to move to another level, and that level is entrepreneurship. I want returned workers to re-invest their money, not on iron (cars, buses, trucks etc…). They must invest on their land, transfer the skills that they have learnt on their land. I want the workers when they return to plant food to sustain the future generation because now we are eating only junk food, and it is not giving us a healthy and wealthy educated Vanuatu.”

Labour mobility alone has raised hundreds of livelihood standards since its humble beginnings in 2008. It has also provided an avenue for locally made popular meals like Simporo to be exported to South Australia and Blenheim in New Zealand. This includes local made coconut oil and soap.

Mr Kaluat emphasized the need to focus on progress and not on delays caused by political instability or other problems. He challenged other agencies to keep their focus, “Are we going to work together to make Vanuatu move forward or are we going to work separately in all sorts of directions? We need to collectively come to a clear policy to determine how we can undertake these programs…we are working for one government, we need to have one clear policy that everyone works to achieve our goals, this are some of the challenges…we need to provide hope for Vanuatu”.

In 2008, 556 million vatu poured into Vanuatu, in 2013 that figure increased to over a billion (VT1,251,000,000). Currently, almost 3,500 Ni-Vanuatu workers are in New Zealand while 399 are in Australia, this means that a further 199 million vatu will enter the Vanuatu economy from Australia.

Despite the political turbulences, Mr Lionel is positive with how things will turn out for his sector, “we should be able to sustain our economy if there is a clear direction with political will. So that it can drive our plans to go through”.

Lionel Kaluat

Lionel Kaluat

It is clear that political stability remains primary concern. It does not only scare businesses and investors away, but it slowly drains away citizen’s rights to a better living, better health care, and better education.

The last speaker Anne Pakoa from VEPAC, delivered a powerful statement on educational rights “when we count our children in the census we should also count them in our education”, she reported that in one particular school in Port Vila 84 children between the of 3 and 5 are being taught under one roof, “the teacher of the class told me that at the end of the day when you go home you feel like you will lose your mind…this are the challenges that we are facing until today”.

She further reported on the economical state of a particular teacher who has been paid VT18, 000 for the past 16 years. Even though the Education sector receives a significant amount of the national budget most of it goes towards the salaries of the workers, she said “but today the teachers are still screaming” for their salaries.

Anne Pakoa

Anne Pakoa

Transparency International Vanuatu’s call on our national leaders is simple and clear. Focus on the people and the nation, and put your political differences aside. The ripple effect caused by your sudden changes of political allegiance reaches far.

The livelihood of those affected who depend on steady salaries for daily subsistence is catastrophic. Your job is to fix the situation and not to further it. Look at what the media is saying, hear what the people are saying, do you have time at all to listen carefully? Or are you too busy to concentrate on what really matters – the people’s needs. If you do not have time then make some time.

Put aside your political difference and work to stabilize the economy. Vanuatu is importing more than it exports and watching local manufacturers go out of business.  TC Pam has left an unfortunate economic forecast for Vanuatu for the next several years. Vanuatu needs the AUD$2 million tourism marketing plan devised for its too biggest markets – Australia and New Zealand launched quickly.

The national leaders need to think seriously about how to deal our way out of this grave situation. Transparency International Vanuatu will publish next week the financial costs that occur during changes of governments by no confidence motions since 2002.

The costs are extravagantly high enough to build several schools and at the same time pay for the teachers’ salaries for several years, instead only a tiny powerful percentage of the population benefits from it.

If you are a leader and you are reading this, take time to think on this encouraging leadership quote – ‘a leader is a dealer in hope’ – (Napoleon Bonaparte). So are you a dealer of hope for your people? If not, then be one!

‘No media’! But They Did It Anyway

Vendors retrieving what they can from the damages caused by TC Pam

Vendors retrieving what they can from the damages caused by TC Pam

A DRAMATIC INCREASE OF rent payment by 50% for each market (handicraft) vendor has raised healthy concerns of whether the current rate is meant to assist them to recover, or to add further pressure on their already tight up budgets.

The vendors used to pay VT6, 000 per month to the Port Vila Municipal Council (PVMC) for the former space at the sea front. Now, at a rate of VT450 per day, per vendor will have to pay about VT9, 000 per month (working days).

While the market vendors, who used to sell their products at the now damaged Vila Handicraft Market, appreciate the PVMC support in allowing them to use part of the city market house to sell their handicrafts, they want the government to step in and help them.

TIV contacted the PVMC Market Manager early last week to enquire on this matter, the response was “the handicraft mothers should appreciate the PVMC’s help.” The Market Manager continued to say that the market belongs to the farmers and not handicrafts mamas, therefore the vendors must not talk to the media, or else they would be removed from the market house.

However, the vendors have bravely stepped forward to demand assistance despite the warning. Last week they appeared in the media, and did the PVMC evacuate them? NO! This gives rise to further questions; why is the rent rate high despite TC Pam? And why were they told not to speak to the media?

A concerned mother from the Port Vila Handicraft Market Association said she wished that the government could allocate a certain amount of money to the PVC, for the Mamas Handicraft Market.

“We now need external support from the government, just because we were not prepared before Cyclone Pam,” she said.

She emphasized the fact that they are promoting Vanuatu and contributing to the economy of the country. The vendor claimed that every year the handicraft mamas at seafront contribute VT 30 million to the economy of Vanuatu because they also do direct exports.

“The government should recognize our contribution to the economy of this country and help us after the cyclone. They should allocate funds to the PVMC for the vendors, so that we could use a space freely to sell our handicrafts to tourists until such time when we recover from the disaster,” she explained.

Damaged Mamas Handicraft Market

Damaged Mamas Handicraft Market

The current rent rate for the Handicraft Mothers selling at the Market house is VT450 per person/per day, and VT50 each for the security provided per night.

The concerned vendor said “even if we don’t sell anything we must dig into our own pockets to get the VT450 and VT50 for the daily rent and for the security. We are just doing it to maintain the trust and relationship with the PVMC although it is a loss for us, because we have nowhere else to go after cyclone Pam damaged all our resources,” she said.

There are about 80 market vendors that are currently selling their handicrafts to tourists at the market house.

There have been a total of 5 cruise ships that have visited Port Vila since TC Pam over a month ago, before that it took only 2 weeks for that same number of cruise ships to visit. This sudden drop in demand adds economic pressure to the market vendors.

The majority of vendors sell their handicrafts when the cruise ships visit, on most day’s still a good number of vendors continue to sell.

Economic-wise, if we calculate the daily fees spent by approximately 80 vendors since April 8, the mothers will have already spent approximately more than VT500, 000 on the rent and security fees. This amount, though not yet in business for a full month, already doubles twice the amount that they used to pay per month at the now damaged Handicraft Market.

The concerned vendor, and mother reported that the Port Vila Handicraft Mamas Association deposited an amount of VT600, 000 to pay off the outstanding rent fees for the vendors before cyclone Pam. Therefore, using up almost all that they had left to rely on to confidently recover.

Apart from that each mother is responsible for paying their own permits and business licenses.

Furthermore, the vendors said their future is unsecured, because PVMC has not yet confirmed to them how long they can occupy the market house. They are worried that the Municipality can remove them from the current location anytime.

Can the government assist the market vendors? Of course they must. When?