Employment and wages will be impacted in the last income tax haven in the Pacific

News | 31 October 2016
Public Lecture on 'Taxing Wages – Implications & Limitations'

A crowd of 120 question-laden people gathered at the Grand Hotel in Port Vila, Vanuatu to listen to the ILO Senior Wages Specialist, Mr Daniel Kostzer. They were workers, employers, government officials, development agencies, NGO’s, parliamentarians and young people, eager to understand the implications of the new tax regime on wages

For the first time in the history of Vanuatu, government intends to introduce 10% income tax, This move to rid the only country in the pacific where workers enjoy zero income tax,  has become a major topic of discussion and debate in Vanuatu. Therefore, the Tripartite Labour Advisory Council (TLAC) in collaboration with the International Labour Organisation (ILO), saw fit to organised a public lecture on Tuesday 18th October 2016, on the topic of “Taxing Wages – Implications & Limitations

“As a matter of principle, the ILO is generally against any tax on wages because they are a means for households and individuals to, without other assets, fulfil all or part of their needs’, said Mr Kostzer. He further highlighted the following important points.

For the supply side:
  • If the household perceives that the household head receives a lower salary, additional members may activate and go to look for a job
  • This may affect in the long run certain members, such as students/children
  • If wages are reduced some members will find less incentive to go to work in the more skilled segment
  • It can induce informality, particularly with the already high number of informal or subsistence workers in Vanuatu.
For the demand side:
  • Employers may not be able to pay higher salaries and reduce workers or stagnate demand
  • Employers may transfer higher labor costs to prices of goods and services, therefore impacting indirectly the most poor.
"We are very concerned not only about the introduction of the income tax, let alone some benefits such as child and housing allowance are being considered to be withdrawn, there is no definite plan provided by government on how this increased government revenue will help workers and niVans”, said Ms Loreen Bani, the President of the Vanuatu Council of Trade Unions (VCTU). 

A representative of government said that if we want efficient government services, we need to provide government with resources to help its people.

Mr Robert Bohn, a tax specialist and employer representative to the TLAC said that while the private sector did not disagree with taxes, there is a need to implement the appropriate type of tax, without adding a burden to workers, employers and government. “We have the Value Added Tax (VAT) in place, which is a more equitable form of tax, which can be increased from 12.5% to 15%”, said Mr Bohn.

ILO Senior Wages Specialist, Mr Daniel Kostzer(second from left) with TLAC members

Mr Kostzer also stressed that even if government will go ahead and implement the income tax, there is a need for evidence, originating from labour force and household income expenditure surveys to understand spending habits, household size, etc to determine tax thrash hold and percentage.

Based on the discussions, the ILO will submit a technical paper to the TLAC for consideration and submission to the Minster for Labour for potential submission to the Council of Ministers.

You can read more about this in the Vanuatu Daily Post