International Tax Competitiveness
By Ian G. Kerr, Investor in Vanuatu.
Smart Countries around the world are reforming their Tax Codes to attract investors. They are doing this by implementing broader tax bases, providing clarity of liability, making taxes more transparent, and reducing the costs of compliance and collection.
In the 2019 OECD International Tax Competitive Index Rankings, Estonia ranks as Number 1 out of 36 OECD Countries, and has done for the last 6 years. The feature of Estonia’s Tax System is its low rates, simplicity, and low compliance times. The result is a buoyant economy, strong growth, and low unemployment. France, on the other hand, continues to languish at the bottom of the table by continuing to introduce taxes on work, saving and investment.
There is a growing global trend to make taxes more transparent, and this is important as Governments have tended to favor hidden taxes. The argument often touted to low income earners by those promoting Income Tax is that they won’t be paying it, which is correct in direct terms, but of course reflected in an increased buying price in for example a bag of rice. Tax Transparency is also important as it increase voter awareness in what is being paid to Governments, and what they are doing with the tax revenue.
The recent Vanuatu Revenue Review Report, completed in 2017, recommended the introduction of both a Corporate and Income Tax, (A tax on labor and profits). Neither of these taxes are conducive to grow the economy of a Least Developed Country, where employment and the cost of productivity need to be encouraged, not penalized. Neither should the complexity of administering a Corporate Income Tax be a challenge offered to a Tax Administration System that struggles to collect VAT.
Drivers of change in Tax Systems in South Pacific Countries are influenced by the donors who fund the research, produce the reports, and make the recommendations. (Searle Report). The concept of introducing Internationally Competitive Tax systems is foreign to International Organisations such as the IMF and the UN who want to try to standardize tax systems so no one Country has a competitive advantage. These organizations all favor big Governments and promote high taxes. (Governments are their main source of revenue.)
Australia, one of our Revenue Review funders, does not rank well in Tax Competitiveness, their Corporate Tax Ranking sits at 27 out of 35, and for individual taxes, 19 out of 35. Their Tax Systems are hardly ones that we should emulate, with conflicting private and binding rulings, legislation that protects them even when they are wrong, the power to take funds out of bank accounts, complexity and the resulting high compliance costs are all contributors to this ranking.
New Zealand, on the other hand, recognized the lack of International Tax Competitiveness, and dramatically reduced Income Tax rates, and made further reductions on Corporate Tax rates, to move them into third place on the overall rankings. They have several tax competitive features, including no inheritance tax, no capital gains tax, and no payroll tax.
With the formation of a new Government for Vanuatu in the near future, revenues to run the Country will no doubt be again reviewed. Let’s hope we can review changes with an open mind to options rather than introducing archaic and complex tax systems. Maybe we invite a delegation from Estonia to advise us??
This is an “opinion piece” and not the opinion of the publisher
Ian G Kerr, Authorised Tax Collector & Payer, Investor & Employer, President Vanuatu Tourism Owners Association