IMF says Seychelles needs to offset Income Tax Cuts

Posted in Business and Economy, International Organisations, Seychelles banking, Seychelles government, Seychelles' statistics at 2:11 pm by Robert Klien

According to the statement following an International Monetary Fund (IMF) staff mission to the Seychelles from March 9-22, the anti-poverty initiatives mentioned in last month’s State of the Nation Address need to be counteracted by other measures.

In his State of the Nation Address, the President Michel disclosed that, as well as minimum wage and pension increases, changes will be made from July 2016 to the personal income tax system, aimed to make it more progressive and reduce the tax burden on low-income earners.

At the conclusion of the IMF’s visit to conduct discussions on the 4th review under the Extended Fund Facility (EFF) arrangement with the Seychelles, the mission noted that, while the economy performed positively in 2015, “slowing growth or recession in a number of key tourism markets could weigh on economic developments in 2016.”

At the end of the IMF’s third EFF review, in January 2016, the International Monetary Fund had concluded that “continued fiscal discipline will be a critical anchor for macroeconomic stability.” It was confirmed that fiscal policy in 2016 continued to target a primary surplus of 3.8% of GDP (gross domestic product). However, the Fund’s latest mission estimated that the newly announced measures “would entail substantial fiscal costs – around three percent of GDP on a full-year basis.” It concluded that “it is important that policies to ensure that the economic benefits from years of strong fiscal consolidation are shared more widely do not undermine macroeconomic stability. The mission therefore recommends that [the new measures] be accompanied by offsetting measures to avoid putting pressure on the balance of payments, inflation, and public debt.”

In that respect, immediately following the IMF mission, the Central Bank of Seychelles (CBS) took steps to reduce the excess liquidity within the monetary system. After analyzing the recent measures announced by the Government of the Seychelles, CBS was counteracting an expected increase in liquidity and demand for foreign currency in the coming months.


Personal Income Tax Reform announced in Seychelles

Posted in Business and Economy, International Organisations, Seychelles government, Seychelles legislation at 2:10 pm by Robert Klien

The President of the Seychelles, James Alix Michel, has confirmed the changes that will be applied to the personal income tax system. These are designed to make taxation fairer and more equitable.

In his recent State of the Nation address, the President foreshadowed reforms aimed at reducing the tax burden on low-income earners and making the personal income tax system more progressive.

Under the changes, from July 2016, individuals earning up to SCR8,555.50 (USD 553.74) per month will not pay any income tax. Then, from January 2017, the first SCR8,555.50 in earnings will be subject to tax at 0%.

Also, Michel announced that the Ministry of Finance will undertake a review of the tax system in order to determine how the Government can “maximize its revenue” and reduce tax evasion in certain economic sectors.

The measures form part of the Government’s medium-term fiscal framework agreed with the International Monetary Fund (IMF), which is designed to stabilize the Government’s finances and reduce public debt. The medium-term fiscal strategy was first put in place in 2008 following a default in debt payments. The plan includes an IMF-agreed target to cut its debt-to-gross domestic product to below 50% by 2018.

According to the IMF, following the completion of its 3rd review of the Seychelles’ Extended Fund Facility (EFF), good progress is being made by the Government towards reducing the public debt burden, with the 2015 budget surplus expected to be around four percent of GDP.

Approximately USD 9.1 million has been received by the Seychelles in monetary assistance from the International Monetary Fund under the EFF arrangement approved in July 2014.