Inland Revenue Department's (IRD) intentions to reform the taxation on non cash benefits show the impact of the proposed changes would be immense.A survey conducted by the Solomon Islands Chamber of Commerce and Industry across 17 firms with a combined number of employees of 3863, of which 62.13% received non cash benefits, finds that on average, those employees receiving non cash benefits would have a decrease in net pay of over 21%.
The proposed changes deal with any non cash benefit, defined as; any benefit, advantage, or facility (other than annual passage home, Pension fund contributions and medical service) or premises provided or granted in respect of that employment.
"The intention is to calculate the value of the non cash benefit, using estimated market value where a monetary value is not already assigned, and add this value to the gross taxable income of the employee. The appropriate amount of PAYE is then calculated using this amount and subsequently deducted from the gross pay. IRD have indicated that they intend to implement the reforms beginning 1st January 2008," the Chamber said in a statement.
At present, the value of a non cash benefit is derived from the Inland Revenue housing and vehicle schedules which denote an exact value to be added onto an employee's taxable income for each particular type of vehicle or accommodation.
The average yearly current after-tax earnings of these employees were found to be SBD$56,024.68, and of those employees surveyed, this represented a decrease in yearly earnings of SBD$11,825.14.
Survey results show that impact of the proposed changes would be immense on the majority who are receiving non cash benefits.
The benefits are routinely offered as incentives to employees on a wide range of pay grades, not simply management level positions.
"... the scope of the proposed changes is extremely wide, attempting to broaden the tax net to include all forms of benefits and intending to implement this over night, in a little over three months time," the Chamber said.
The inevitable increase on the amount of tax collected will have firms face up with the unpleasant task of deciding on whom the burden of the increase shall fall, the company or the employee.
"... if a firm is to shoulder the cost of the increase in its entirety it will represent a huge increase in business costs and such costs will be passed directly onto the consumer. The inflationary impact of this cannot be ignored."
"Either way the overall costs of doing business in the Solomon Islands will increase dramatically, adding to the disincentives associated with locating a business here for foreign investors or for operating a registered and tax paying business for locals. The Chamber of Commerce and Industry cannot caution against this move strongly enough."