Frequently Asked Questions - Q&A

FAQs - Q&A

VAT taxes the consumption of goods and services.  As the economy grows and people’s incomes rise, they save more and consume a smaller proportion of their incomes.  This means slower VAT growth.  If we want the Government to provide a certain level of public goods and services now and in the future, the Government needs a source of revenue that grows with the economy and incomes.

The burden of paying for the goods and services provided by the Government can be more equally shared across the community with an income tax than VAT.  Lower income people who spend most of their incomes on consumption are more affected by VAT than higher income people who save more.

Companies are legal entities that are taxed separately to the individuals who own them.  The company will pay corporate income tax on net profits.  Broadly, net profit equals annual taxable income less allowable deductions.  Deductions allowed against the income in the tax law will include salary and wages paid to employees, general business expenses, repairs and maintenance, fees and charges paid, depreciation and interest paid.  Dividends are not allowable deductions.

Companies with employees will need to make PAYE deductions from the salary and wages paid to employees and send them to the Department of Customs and Inland Revenue (DCIR).

The kava bar owner will need to file an annual income tax return showing the income earned from the kava bar (broadly sales less expenses) and any other income earned.  Small businesses (with annual sales less than 10 million vatu) will have simplified accounting and filing requirements because they do not have the same complicated transactions as large businesses.  The kava bar will be paying income tax (personal income tax or corporate income tax depending on how the business is run) on profits. For individual businesses, no tax is payable if the total income less allowable deductions is under 750,000 vatu per year.  Companies will pay tax at a flat rate on all taxable income they earn.

Businesses with employees will need to make PAYE deductions from the salary and wages paid to employees and send them to the Department of Customs and Inland Revenue (DCIR).

Bus and taxi drivers who are self-employed will need to file an annual income tax return and pay income tax in the same way as the kava bar owner (above).

If the driver is an employee of another business, the employer must make PAYE deductions from the salary and wages paid to the employee and send the amount deducted to the Department of Customs and Inland Revenue (DCIR) like for any other employee.

Vanuatu has a large number of people with home produced and consumed goods, about 70% of working persons.  The tax-free threshold of 750,000 vatu annual income ensures ‘subsistence living’ is not subject to income tax.

People selling home produced products (e.g. fruit, vegetables, handicrafts) will pay income tax if they have annual incomes (broadly sales less expenses) above the tax-free threshold of 750,000 vatu.  The tax system will be designed to make it easy for small businesses to comply with their tax obligations including reporting and filing.

If people sell goods for another person on commission (which is typically a set percentage of the sales), they may be subject to salary and wage tax deductions on their commission income.

A tax identification number (TIN) is a new unique identification number that will help the Department for Customs and Inland Revenue (DCIR) identify taxpayers.  If you are an employee you will need to give your TIN to your employer so that your employer can withhold and pay the right amount on your behalf to DCIR.  If you don’t provide your TIN, your employer will be required to withhold the top rate of tax (17% from all payments) until the TIN is provided.  You will be able to lodge a return to claim any overpaid tax back at the end of the year.

Your employer will be required to deduct the appropriate amount from your salary or wage when it is paid to cover the tax you would pay at the end of the year. If you are an employee and only earn salary and wages income and the correct PAYE deduction is made by your employer and sent to the Department of Customs and Inland Revenue (DCIR), you are not expected to need to lodge an annual tax return.

If you earn employment income and business income, for example from a rental property, you must add your income together (salary and wages income plus taxable income from business) to work out your total taxable income.  Tax is paid on the total taxable income and the tax payable is reduced by any tax that was paid during the year by the business or withheld by the employer.  You will need to lodge an annual tax return.

Borrowing shifts some of the costs of Government spending to future generations. Prudent borrowing by the Government makes sense when future generations benefit from the expenditure, like with roads, airports, hospitals.  Our grandchildren will use the roads we build today and may reasonably be expected to contribute to the costs of building them. 

Borrowing too much, however, places us in a difficult position. If we borrow too much we may not have access to loans should we face another disaster such as cyclone Pam. We must ensure than our level of borrowing does not exceed prudent levels or our capacity to repay. 

Current expenditures, like police services, courts, electricity to operate schools and hospitals, salaries of public servants, road maintenance, benefit current generations and ought to be financed out of current revenues, i.e. taxes.