Frequently Asked Questions - Q&A

FAQs - Q&A

Personal income tax is a tax on the income earned by individuals. Income includes salaries and wages, business income (i.e. business profits), investment income, rental income, interest etc. Personal income tax will be imposed at a ‘progressive’ rate (meaning that tax paid as a proportion of income rises with income). Only individuals earning income above a tax-free threshold will pay income tax. People earning less than 750,000 vatu a year (or 28,846 vatu a fortnight with 26 pay periods a year) will not pay income tax.

“Pay as you Earn” or PAYE is where the employer deducts an amount from your employment income to offset against the personal income tax you would have to pay at the end of the year. The amount withheld is called a PAYE deduction and is passed on the Department of Customs and Inland Revenue (DCIR) when salary or wages are paid. This amount generally matches the tax that you would have to pay at the end of the year. Effectively, employees pay their taxes as they get paid.

No. Employees will not be able to reduce the tax paid on their employment income. Employees will not pay tax on allowances (such as travel allowances) or reimbursements of expenses for work purposes.

A corporate income tax is a tax on the taxable profits of companies (broadly, gross income less allowable expenses).  Companies are legal entities that are taxed separately to the individuals who own them.  Companies pay tax at a flat rate of 17% of their taxable profits.  All companies that make a profit are subject to income tax.  Companies that make a loss during the tax year do not pay income tax. 

How much income tax you will pay depends on your taxable income.  Broadly taxable income is for salary and wages the amount you earn.  For business income it is total income less expenses allowed as deductions.  If your annual taxable income is below 750,000 vatu (or about 28,846 vatu a fortnight) you will not pay income tax.  The personal income tax rate will be ‘progressive’ meaning that it will increase with income.  You can estimate your tax payable using the Tax Calculator on this web site.

Yes. Non cash benefits such as private use of car, reimbursement of private expenses are income and will be taxed.  For non-cash benefits, employers will need to determine a market value of the benefits or work out the value using formulas in the tax law.  For example, if the employer provides free accommodation to an employee, the market value of this in-kind benefit will be the rental cost of comparable accommodation.

The current revenue system mainly relies on VAT. The Government does not have sufficient revenue to make interest and debt repayments as well as provide essential public services, such as free basic education and health. Quality Government expenditure (including to build and maintain roads, schools, hospitals, airports, ports) is needed to achieve sustainable development and higher living standards in Vanuatu.

There are no plans to lower the VAT rate.  The focus is on lowering taxes that are harmful to economic growth.  These are fees and charges that are costly for businesses to comply with and import duties that increase the cost of capital and lower investment.  The reductions in import duties will also lower the cost of living.

To offset some of the increased tax burden of income tax and to help reduce the cost of living and doing business it is proposed to make significant reductions in existing fees and charges and import duties. These would include:

• Abolish rent tax

• Abolish business licence fee (basic business licences may be retained to monitor business activity)

• Abolish the turnover tax

• Reduce Vanuatu Investment Promotion Authority (VIPA) fees, work permits, Immigration fees etc.

• Significantly reduce import duties 

• Reduce stamp duties

• Reduce registration of offshore companies

• Reduce registration fees for domestic companies.

• Improved distribution of funds to Municipal and Provincial Governments.

Submissions are invited from the public on what fees, charges and import duties should be eliminated or reduced.  The fees and charges proposed to be eliminated or reduced immediately are those that are difficult to enforce, costly to comply with and / or are not supportive of economic growth.