A substantial fiscal over-performance by the Seychelles in 2010 after two years of its stabilization programme, together with a rapidly recovering economy on the back of the tourist sector, has led to a recent International Monetary Fund (IMF) staff report recommending completion of the country’s three-year funding facility.
The IMF considered that the strong and continued fiscal adjustment has restored the prospect of sustained medium-term growth and debt sustainability for the Seychelles. Buoyant government revenues have created fiscal space for extra discretionary spending while accelerating debt reduction. Revenues are now expected to exceed original budget projections by more than 4% of gross domestic product in 2010, reflecting mainly stronger-than-expected tax collections on turnover and imports.
In the IMF’s opinion, tax reforms and improvements in revenue administration and expenditure management have helped to sustain the credibility of the fiscal adjustment. The reform of the tax system launched at the start of 2010 has continued; its base has been broadened; and the system is becoming increasingly simple, fair and equitable as the various stages of reform come into effect, with no new tax incentives and exemptions.
It pointed out that the government is implementing comprehensive tax reforms aimed at further rationalizing the tax system and harmonizing rates across sectors. The personal income tax rate was also reduced from 18.75% to 15%, effective October 1, three months ahead of schedule. From January 1, 2011, with the increase from 10% in the personal income tax rate paid by expatriates, there is one harmonized rate of personal income tax for all employees in all sectors.
In addition, preferential goods and services tax (GST) rates for tourism are being phased out, and preparatory work is underway for replacing GST with a value-added tax (VAT) in 2012. The Seychelles government has said that the introduction of the VAT is aimed at “improving integration in the economy, broadening of the base, elimination of cascading, and increased efficiency and fairness.”
Further tax administration reforms will also be entailed, including at the newly established large taxpayer unit of the Seychelles Revenue Commission and increased coordination with the Customs Department.
The IMF considered that the strong and continued fiscal adjustment has restored the prospect of sustained medium-term growth and debt sustainability for the Seychelles. Buoyant government revenues have created fiscal space for extra discretionary spending while accelerating debt reduction. Revenues are now expected to exceed original budget projections by more than 4% of gross domestic product in 2010, reflecting mainly stronger-than-expected tax collections on turnover and imports.
In the IMF’s opinion, tax reforms and improvements in revenue administration and expenditure management have helped to sustain the credibility of the fiscal adjustment. The reform of the tax system launched at the start of 2010 has continued; its base has been broadened; and the system is becoming increasingly simple, fair and equitable as the various stages of reform come into effect, with no new tax incentives and exemptions.
It pointed out that the government is implementing comprehensive tax reforms aimed at further rationalizing the tax system and harmonizing rates across sectors. The personal income tax rate was also reduced from 18.75% to 15%, effective October 1, three months ahead of schedule. From January 1, 2011, with the increase from 10% in the personal income tax rate paid by expatriates, there is one harmonized rate of personal income tax for all employees in all sectors.
In addition, preferential goods and services tax (GST) rates for tourism are being phased out, and preparatory work is underway for replacing GST with a value-added tax (VAT) in 2012. The Seychelles government has said that the introduction of the VAT is aimed at “improving integration in the economy, broadening of the base, elimination of cascading, and increased efficiency and fairness.”
Further tax administration reforms will also be entailed, including at the newly established large taxpayer unit of the Seychelles Revenue Commission and increased coordination with the Customs Department.
