Seychelles Chamber of Commerce - Comments on 2010 Budget Speech

Seychelles Chamber of Commerce & Industry
2nd Floor Ebrahim Building – P.O. Box 1399 VICTORIA – MAHE – SEYCHELLES
Tel: 323 812 Fax: 321422 E-mail: scci@Seychelles.net


PRESS COMMUNIQUE - Comments on the 2010 Annual Budget Speech
4th December 2009

The Seychelles Chamber of Commerce & Industry welcomes the ongoing economic reforms
and maintains that efforts must be sustained in a major restructuring of the economy to pave the way
for real growth of the productive sectors to provide job opportunities in the future. Real growth can only
be achieved through the net increase in the gross domestic product after any increase in prices has
been taken into consideration.

To this end, the SCCI welcomes the general principles of fundamental reforms being
introduced in the National Budget for 2010. However, the SCCI regrets that many of its proposals for
reform have not been considered or included in the provisions for the 2010 Budget and that the
fundamental issue of creating a level playing field in which all businesses within the economy will be
given equal and fair treatment is not sufficiently addressed in the Budget; a number of proposals as
mentioned below create more inequalities and the SCCI wishes to draw special attention to the
following:

1. Taxation Reforms
The SCCI welcomes the expressed intention of Government to carry out a major reform of the
taxation system based on ensuring a level playing field for all businesses and broadening the
taxation base to ensure more equality and a fairer distribution of the tax burden. However, the
SCCI is deeply concerned by the inequalities and unfairness that is maintained for too long a
period and by new inequalities introduced by the present reforms. To this end, the SCCI draws
attention to the following features of the budget which will likely hinder expansion to small
businesses

Business Tax - Reduced thresholds will affect the small businesses negatively. Whereas the
SCCI welcomes the reduction in top rates of taxation and notes that it will bring direct benefits only
to larger businesses, the proposal to tax all companies, which include small proprietary companies
(Pty Ltd) at higher initial tax rates compared to similar businesses operated as “sole traders”
brings in a taxation policy based on legal status and introduces unequal treatment for taxation
purposes within the same industry. The 15% withholding tax on interest will affect the savings of
small savers which is already exacerbated by a lower interest rate now down to 2% compared to
3.5% per annum prior to November 2008 and will have the effect of discouraging savings
altogether. Further the proposal to implement withholding taxes on all dividends paid will have the
negative effect of taxing the same “income” twice; a trend not in conformity with practices being
applied regionally e.g. Mauritius which has recently abolished all taxes on dividends. Furthermore,
the decision to exempt liability for social security contributions on staff accommodation, meals and
transport for the construction and tourism accommodation industries only should be extended to
all economic sectors in the interests of fairness and equality before the law.

GST – Pending the introduction of the VAT system, the proposed arrangement will benefit
businesses that import raw materials and the SCCI welcomes this. However, for the importation of
goods, the current practice of adding 12% GST to the 30% mark up effectively brings the GST
charged to 15.6%. It is therefore unlikely that there will be any major reduction in the costs of
imported goods. Furthermore, if services continue to be taxed on their turn over, the 15% GST
payable by the business (effectively 17.65%) is unlikely to reduce the cost of these services to the
consumers.

Trades Tax & Excise Duty – It is not clear whether the existing concessions and exemptions
granted under the Tourism Incentives Act and the Agriculture & Fisheries Incentives Act will
continue to apply and to what extent.

Personal Income Tax – Whereas the SCCI welcomes the general principle of widening the tax
base to have all citizens participate in the national economic effort, the SCCI is concerned of the
cost factor involved in the new system and expresses regret that once again an opportunity is
missed to level the playing field by allowing special rates for certain elements within the economy.
Moreover, the increase in gross salary of all workers will have a negative effect on the
compensation for long service which is already a serious financial burden and hindrance to
employment and which remains in force as long as the current Employment legislation subsists.
Furthermore, the PIT places the entire tax burden on the employer and will not assist in sensitizing
citizens on their individual responsibilities.

2. Cost of Doing Business
The SCCI also regrets the absence in the Budget speech of a firm commitment by Government to
address the high cost of doing business in Seychelles which has been exacerbated as a result of
the economic reforms of the past year and which will continue to be affected under the existing
budget proposals.

The SCCI regrets in particular the effect of the new personal income tax which will increase the
cost of employment and impact adversely on the element of compensation for long service which
will be calculated on a higher salary base as from July 2010 and the increase in the pension fund
contributions and the minimum wage.
Furthermore, without an effective reduction in the interest rate for borrowing and the forecast of
further increase in utilities, the cost of doing business is expected to increase further in the coming
year.

3. Review of the Business Environment to Enable Growth
The SCCI welcomes the announcement that Government is committed to undertake fundamental
reforms to modernise the business regulatory framework and improve the business climate.
However, the SCCI regrets that the delays in addressing these fundamental issues continues to
adversely affect businesses and creates additional burdens and negative factors to the rest of the
macro-economic programme in that the business climate is not conducive to further investment
and expansion of businesses and therefore is a hindrance to economic growth. Whereas the
groundwork in this process has been ongoing since 2004, very little progress has been made as
the economic situation has gone through fundamental changes.

The SCCI reiterates its full commitment to the review process of the Licensing Act, the Investment
Code, the Companies’ Act, the Employment Act and all other legislation that affects the business
environment and creates additional cost burdens to business.
The SCCI further regrets the opportunity lost in launching a national campaign for real productivity
gains and improvements in the National Budget at the same time as the reforms are introduced.

Conclusion
The SCCI recognises the work done to date in improving the economy and generally welcomes the
proposals for second generation reforms. Recognizing that the main objective in the national interest
is to create an enabling environment for real economic, the SCCI commits itself and the private sector
as a whole to continue working closely with Government as an equal and effective partner in the
national development of Seychelles.