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ADB, Australia to Help Solomon Islands Reform Its Tax System

Wahyu Dwi Anggoro - 29 September 2021 10:01 WIB
ADB, Australia to Help Solomon Islands Reform Its Tax System
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Sydney: The Asian Development Bank (ADB) has joined with the governments of New Zealand and Australia to help Solomon Islands overhaul its tax system to expand and secure the country’s revenue base.

The $20.1 million, 5-year Domestic Resource Mobilization Project will restructure Solomon Islands’ Inland Revenue Division (IRD), install a new tax administration information system, train and upskill staff, and deliver a public information campaign to increase taxpayer understanding and compliance. Together, these reforms will enable the transition to a fairer, more efficient, and more transparent tax system.

 



"Complicated tax laws and the absence of broad-based taxes leave Solomon Islands dependent on income from a few major industries, more vulnerable to economic shocks, and reliant on foreign aid," said Regional Director of ADB’s Pacific Liaison and Coordination Office in Sydney Lotte Schou-Zibell in a press release on Tuesday. 

"This project will support the government’s efforts to reform the tax system to make it efficient, sustainable, and inexpensive to administer, while discouraging tax avoidance and encouraging productive investments. This will be particularly important for helping Solomon Islands to recover from the widespread impacts of the COVID-19 pandemic and identifying higher levels of investment to support economic growth," the ADB official stated.

Revenue collection in Solomon Islands is burdened by a complex and unwieldy tax framework, with multiple discreet and indirect taxes that have their own legislation, rates, exemptions, assessments, filing requirements, and penalties. Direct taxes on corporate, individual, and wage incomes also each have different rules, requirements, and penalties.

With ADB’s support, an ongoing government tax reform program is preparing simpler tax legislation, including a new tax administration law, the introduction of a value-added tax (VAT), and a review of income tax arrangements. The project will deliver the training, technology, and institutional reforms needed for the IRD to administer this new tax framework.

The project will help implement an ongoing restructure of the IRD and fund the acquisition of a new, fit-for-purpose tax administration information system and equipment allowing tax data to be shared across IRD, improve reporting, incorporate critical security features, and allow for the introduction of the planned VAT. It will also collect sex-disaggregated data for the first time and make the IRD’s records compatible with other government systems.

With the introduction of a new tax framework, including a VAT, the project will help design and deliver a comprehensive taxpayer education program to inform individuals, businesses, tax agents, and others of the new services, obligations, and reporting requirements. Special attention will be given to ensuring women taxpayers and entrepreneurs are informed and encouraged to participate in the formal economy.

The Domestic Resource Mobilization Project is funded through a $5.5 million grant from ADB, a $6.5 million grant from New Zealand, a $3.5 million grant from Australia, and $4.6 million from the Government of Solomon Islands.

(WAH)

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