Transparency Solomon Islands (TSI) is concerned at the involvement of politicians in assessing the export value of logs.In press statement the TSI states that there are well-authenticated stories circulating in Honiara that the government is losing SBD$1m to SBD $2m a week in revenue because the price on which export duty is paid on logs is too low-and that this has been going on for several years, losing hundreds of millions of dollars that should have gone into improving government services.
The press statement stated that export duty is paid at a rate fixed by the Minister of Finance. It is paid on the value of the log when it is loaded onto the ship. This is known as the fob price-'free on board', all charges up to and including loading having been paid. The exporter declares this fob value in the customs entry documents for the shipment. He may or may not be telling the truth, but it is an offence to give false information.
"The fob price is different from what the buyer overseas will be paying for the log. The buyer is paying the exporter whatever price they have agreed, which may not be the same as that declared by the exporter to Customs," the statement reads.
"There are several reasons why an exporter may falsely declare a low fob price. First, to reduce the amount of export duty he has to pay. Second, to reduce the income he appears to be earning in Solomon Islands, to avoid paying business income tax to the government (he can arrange to receive some of the payment overseas by selling the logs to a related company for an artificially low price-this is called transfer pricing). And third, to reduce the amount of money he has to share with whoever contracted him to cut and export the logs-the so-called landowners and the middleman or agent who put the deal together."
TSI went on to say that with so many reasons why a falsely low fob price might be declared by exporters, many governments set a 'determined price' for payment of export duty, which could be quite low.
"It should be a technical exercise with no political involvement. It should be a completely transparent process and the information that it is based on is readily available and can be locally published," the statement reads.
TSI highlighted the fact that the new government has made a commitment in its policy goals for forestry "to ensure Solomon Islands receives fair returns on the export of round logs that reflect true international market prices." Also highlighted is the governments policy goals for finance, it has promised 'improved revenue collection with tax reforms that are more efficient and fair'.
TSI welcomes the government's policy goal and advises that an excellent way to start will be to remove, without further delay, the non-transparent influence of ministerial discretion from the fixing of the determined price for round log exports.