National Revenue Review Committee Response to Mr. Daniel J. Mitchell presentations.

Mr Tony Sewen, Chair of the Revenue Review Committee wishes to thank Mr Daniel J. Mitchell (Senior Fellow at the Cato Institute) for delivering the public lecture titled ‘Should the Government of Vanuatu impose a Personal and Corporate Income Tax?’ on 6th December 2016 and appreciates his input on the proposal for revenue reform in Vanuatu.

The discussion raised a range of issues which in many ways the team agrees with. In particular, it is agreed that open markets, lower regulations, competitive trade policy and prudent fiscal planning are vital to develop a strong and sustainable economy.

Mr Sewen pointed out that the Government is undertaking many initiatives designed to enhance Vanuatu’s long term growth. Improving our port facilities, airports and transportation to and within outer islands, regulatory environment and removing trade barriers are all critical to long term economic growth. We are confident that these measures will boost foreign direct investment.

Reform of our tax and revenue system is intended to support our long term viability. It is essential for the government to have sufficient revenue to provide vital public goods and services that private sector does not produce or produces less of than what is socially optimal to help improve social and economic performance.

Mr Mitchell was opposed to the imposition of income tax on the basis that it would allow government to grow large. This view is a personal political view held by the presenter. The proposed reforms are not expected to expand government excessively. Under the current proposal, the offsets generated from lowering import duties and removing other fees and charges generate total revenue that is less than 20% of GDP, well below OECD norm.

The proposed income tax is broad base and neutral in nature. It imposes tax in a more progressive way that will grow with the economy as income grows. The modest tax rate is one of the lowest personal income and corporate tax in the region. This ensures competitiveness and achieves a good balance between fairness, efficiency and revenue needs. 

Mr Sewen emphasised that revenue reforms are driven by the government with support from IMF and other international donors. He said, “It is disappointing that people who oppose the proposed reforms continue to mislead the public. Minister and the government are leading the tax reform initiatives. No foreign country or agency is dictating Vanuatu on income tax.”

The revenue review team is continuing to work on developing proposals. We take on board comments made by Dr Mitchell on the need for sound fiscal management and spending control into the future.