Tax Reform Bill in Vanuatu Has Far-Reaching Effects

By Dan McGarry – It’s mostly carrot and—so far—very little stick where the government’s new tax regime is concerned.

The massive new law runs to 106 pages including the explanatory note and schedules.

But if passed, it could make things much clearer for business owners.

The government is quick to emphasise that this major legal overhaul does not impose an income tax, nor does it impose “any new fees or charges” on taxpayers.

It does, however, create necessary preconditions for an income tax. Given that this reform package is due to come into effect on April 1 2019, income tax almost certain to become a key election issue in 2020.

The law establishes a legal framework mandating the Department of Customs and Inland Revenue as a one-stop shop for tax assessment, payments, penalties and tax law enforcement.

The most important reform is the creation of a Tax Information Number. Everyone who pays taxes is legally required to have one—and only one—tax information number. Employers can obtain tax information numbers for their employees.

A TIN, as it’s known, is the key to everything. It’s used to track a person or a company’s commercial activity and their assessments and payments. It will be an offense not to have a TIN if you owe tax, and an offense to use someone else’s or to possess more than one for the same person or business.

In the context of income tax, a business owner might have one TIN for their company, one for themselves, and each of their employees would have a TIN as well.

Record-keeping and retention requirements remain the same for companies and individuals.

The new laws empower the DCIR to keep tax-related records using the TIN as a unique identifier. These records may be shared with other tax officers, with law enforcement, and with government workers as necessary. Tax officers are required to minimise the amount of information they share.

The biggest benefit of a TIN will take some time to arrive. Officials have assured the Daily Post that DCIR is already hard at work creating e-filing services for tax self-assessments, payments and refunds. This should come as a welcome relief to everyone who’s lost hours lining up to pay their VAT.

All in all, the simplification created by a TIN-based tax processing system will be welcomed by most diligent taxpayers. Those who managed to skate around their responsibilities in the past may not be so glad.

Perhaps in anticipation of a future income tax, the DCIR will be authorised to register tax agents, who can act for a person or company in assessing, processing and paying taxes. Agents are not accountable for any tax infractions, fines or fees, unless they contributed to the problem.

For example: If you give your tax agent your VAT return on time, but they’re late filing it, they have to pay the penalty, not you.

Another important element of the legislation is the creation of a Revenue Tribunal. Chaired by a Supreme Court judge, revenue tribunals are composed of experts with specific skills or knowledge relevant to a case. These are appointed by the minister responsible. Right now, that’s the Minister of Finance.

The tribunals are not bound by the rules of evidence, and they’re required to operate “with as little formality and technicality as possible”, presumably to ensure that the proceedings are understandable to everyone.

Appeals of revenue tribunal decisions can be made to the Supreme Court, and to the Court of Appeals if necessary.

Anyone who obstructs the tribunal or fails to assist with reasonable requests could be subject to measures similar to those meted out for contempt of court.

The tribunal operates more or less independently of the DCIR.

Countless people have criticised governments present and past, insisting they have to do more to enforce the tax laws that already exist. This is recognised by the government in its explanatory note. “There is evidence,” it states, “of tax avoidance and lack of commitment from various taxpayers”.

The DCIR is given wide-ranging powers to request financial records, and to enter a business and seize them if necessary. They are mandated to use Police if they feel the need. Under the new law, the DCIR can also temporarily shut your business down for up to two weeks if it’s deemed necessary.

They can seize goods equal to the amount owed in taxes, fines and interest accumulated. They can also seize whatever records they deem necessary.

And buried in the middle of this massive tome is the authorisation of the DCIR to obtain encryption keys or any other devices or data needed to unlock encrypted files. This may become a concern for privacy advocates, especially if other parties gain access to these records.

In addition to these 106 pages of new tax law, several other pieces of legislation will need to be adjusted before the April 1 roll-out.

A detailed analysis of the government’s proposed financial reform package will be published in next week’s Vanuatu Business Review.

Source: The Vanuatu Daily Post

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