The Vanuatu Economic Stimulus Package ( ESP)

On the 31st March a little over a week after the 2020 national elections, the outgoing caretaker Prime Minister, Charlot Salwai, issued a statement in response to the COVID-19 Crisis and the economic outlook for Vanuatu. The statement contained a number of measures to be implemented, that were intended to stimulate the economy after the closure of our borders and the devastating effects of this on the country’s tourism sector. The business community welcomed and applauded this initiative. The VBR has reviewed the Government Economic Stimulus Package and its implementation

Deferral and Cancellation of taxes and Charges

The caretaker government announced that it would defer a number of taxes and charges in 2020 to assist business back dated to the beginning of January.Those who had already paid their business fees were to be refunded.The practical reality was that this was never implemented. Those who had not paid their Business License Fees were able to benefit.Subsequently, it was announced that for those who had paid prior to 31st March, the 2021 business License fees would be waived.

Still not obtained clarity from the-government on how the reduction in the rate would be implemented. Despite this, the banking industry have been involved from the beginning of the crisis in trying to assist businesses manage their survival.

The Employment Stabilisation Payment (ESP)

The Employment Stabilization Payment (ESP) was the cornerstone part of the Stimulus Package and in a COM decision No16/2020, it was agreed that it would commence implementation of the proposal. Under the ESP, eligible employers would receive VT,000 per employee for four months from March – June 2020.In addition to this, employers would receive an additional 12%to cater for VNPF contributions and other costs. VNPF confirmed that approximately 20,000 +employees from the private sector were covered under this package.

Applications for the ESP commenced middle of April. At the end of April, the Vanuatu Government announced that the Employment Stimulus package had received over 200 applications, and payments to 36 companies covering 883 employees had been approved.

The Daily Post reported on May 9 that the Government had announced that it had established its Policy regarding eligibility of the various sectors in the economy to the ESP. This policy was a dramatic change to the original announcement that all small to medium enterprises with a business licence and registered with the VNPF were eligible. The new policy was that only the Tourism and Hospitality sectors were eligible. Concerns were raised by the VCCI that because of the change in policy, staff layoffs in the private sector were a distinct possibility.

In response, the Opposition Bloc in government voiced their disagreement with the government and urged it to reconsider its decision to make it more inclusiveof all businesses. It accused the government of moving the goalposts and changing the objectives and scope of the employment stabilisation programme, jeopardizing survival of many businesses and therefore the employment of many Ni-Vanuatu. Businesses in Vanuatu who were not involved in hospitality but have been indirectly affected by the crisis accused the Vanuatu Government of misleading them .Many had postponed staff layoffs in anticipation of receiving the subsidy.

The VCCI urged the government to reconsider its decision, and subsequently, it was announced that it would review its policy. On Saturday 6 June, the Department of Finance announced that it had relaxed its ESP payment conditions and that the new rules for eligibility were that businesses had to demonstrate that they had been affected by the economic downturn by presenting VAT payment receipts for 2019 and the same period in2020. Each application would be assessed individually by Finance.

Subsidy to the productive sector and the Transport sector

In its public statement, on the 31st March, the caretaker Government announced that it would provide support to the productive and transport sectors. Subsequent to this, Prime Minister Bob Loughman, in his address on the official opening of the first session of Parliament, confirmed that it would implement this through commodity support grant million. In addition, the PM confirmed that his government would also provide a shipping support Grant of VT100 million to assist shipping owners. It has not been clear on how the subsidy would be implemented.

Infrastructure Spending

The 2020 budget passed by the previous government included VT8.2 Billion of infrastructure spending. A further VT3 Billion for recovery and reconstruction was announced by PM Bob Loughman, to assist in the aftermath of the devastation caused by Cyclone Harold in the Northern Islands.

School Fees Subsidy

The Government has acknowledged that many families are affected by the COVID-19 crisis and this has placed pressure on payment of school fees. In addition to other measures to be implemented under the ESP, school fees for government funded schools would be waived and that a further grant of VT42,000 per student would be provided as a subsidy to private schools. Privately funded schools that VBR spoke to have advise dthat they have lodged applications for the subsidy but are still waiting for the payments to be effected.

The VBR reached out to the Department of Finance for comment and answers. At the time of going to press, we were unable to obtain clarification on questions related to the Support Grants to the Transport and Productive sectors, and the Infrastructure Program.

Original Salwai PolicyCurrent Government PolicyImplementation
Deferral and cancellation of government fees, taxes and ChargesRetained. Tax relief measures worth VT779m as Government Revenue foregoneBeing implemented
Bank Turnover tax reduced to 5%Retained but clarity lacking in how it would flow on to bank clientsNot implemented as banks had paid 7% prior to announcement of reduction. Uncertainty on how it will be implemented
Business Licence cancelled and refunded to those already paidBusiness licence fees cancelled for 2020 and an additional 60,000 grant payment to SMEs with a business license.SME grants currently being processed. Announcement that for those who have paid business license early, a waiver in 2021.
Employment Stabilisation payment of 30,000 per employee to SMEs with Turnover up to 200m, plus 15% incentive paymentEligibility criteria only for Tourism and hospitality but relaxed to allow businesses badly affected by crisis to be eligible based on VAT returns. Incentive payment reduced to 12%.Payments being processed to eligible businesses but complaints of delays. Lack of clarity on criteria for eligibility after relaxation of policy.
Subsidy payments to the Productive sector Ie copra, kava, cocoaRetained with VT300m Commodity Support GrantTo be confirmed by Department of Finance
Subsidy Payments to the Transport Sector, ie ShippingShipping Support Grant of VT100m to help shipping ownersTo be confirmed by Department of Finance
Infrastructure Spending of VT8.2B to be fast trackedInfrastructure spending was already in 2020 budget. A further Post TC Harold recovery and reconstruction program of VT3 billion.To be confirmed by Department of Finance
School Fee Exemption for Government Schools and subsidy to Non-Government SchoolsTuition fee exemption for Government schools and a grant of 42,000 per child for private schoolsApplications for subsidies being processed but delays in receipt of funds.

(Trading post limited, publisher of the Vanuatu Business Review has applied for the Employment Stabilisation Payment)