I wish to thank a writer for bringing up the issue of increasing of personal exemption income of $7800 per annum for the employees. I too would support your idea given the cost of living generally in Solomon Islands and Honiara especially is beyond imagination.
The personal exemption income of $7800 is provided for under section 29 (Income Tax Act CAP 123). What it means is that, an employee in the formal sector in Honiara or other urban centres, earning that amount or less is exempted from personal income tax (PAYE). They are subject to PAYE (Pay As You Earn) tax only if they earn more.
In comparison to other countries, even if the amount of $15,000 per annum suggested by the writer is still peanuts. It would have been better if the personal exemption income be increased to $20,000 per annum.However, if the government is to consider this it would need to undergo thorough cost and benefits analysis research to come up with an alternative tax so that by foregoing this amount in its total revenue, it has to recover it somehow.
One suggestion is that the government should also review the current goods tax and sales tax. These two forms of taxes are also having the cascading effects as well to the employees purchasing ability as well. The low to middle income earners have zero chance to save the net pay or some incentive to invest under the current personal exemption income and the various rates and income brackets. Therefore not only would it be proper to increase the personal exemption income but the various rates and income brackets need to be reviewed as well.
What if the goods tax and sales tax are to be scrapped and a broad based Value Added Tax (VAT) is to be applied? I believe the hardworking department of Inland Revenue has already progressed to some stage on this. This would ensure tax is imposed on consumption and not income which would at least given some relief to the issue raised by the said writer provided the VAT is introduced and implemented with caution.
Oopps, I forgot, maybe the other types of taxes in the current tax system needs reviewing as well not just personal income tax (tax on wages). Mr Taxman, impose tax on the tax payers and taxable persons with justice, equity and fairness.
Increasing Personal Exemption income of $7800 on wages
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