Tax credit plan a "game-changer" for exports
The Samoa Association of Manufacturers and Exporters (S.A.M.E.) is proposing a radical stimulus measure for Samoa’s export sector - a “game-changer” it hopes wins Government approval.
S.A.M.E. proposes that any business investing to develop its export capacities could use any interest incurred on their business loans to offset their tax bill
Under the bold tax credit plan, any eligible business would be required to pay four per cent of their interest, with the Government footing the rest through a tax refund.
President Tagaloga Eddie Wilson said the Ministry of Finance has said it supports the plan and has requested a formal proposal be submitted to the Government, which he hopes to do by the end of the month.
“If that comes through that will be a game-changer and give the private sector that push it needs,” Tagaloga said.
S.A.M.E. has declared it is seeking to help Samoa triple its export output by 2025 to reach $300 million a year. Tagaloa said this scheme will be instrumental in getting Samoa to that point.
Whether a loan is from a commercial bank, the Samoa National Provident Fund (N.P.F.), the Development Bank of Samoa or any other source, Taglaoa hopes lenders across the financial sector will back the initiative.
He said the plan poses no risk to the Government, and banks continue to receive fair interest rates of four per cent on their customers’ principal sum, as well the right to only approve enterprises who pass their due diligence checks for the scheme.
The scheme would involve a second appraisal from an investment committee to judge if the individual or company seeking borrowing has a sound plan oriented toward export development.
“There is no risk to the Government because the commercial banks or Development Bank or N.P.F. will do their evaluation if the project is viable, then the investor carries the risk,” Tagaloa said.
“We wanted to triple exports from $33 million to $100 million (from 2016 to 2020) and we have done that.
“We want to triple it again by 2025 to $300 million and the only way to do that is to have an investment inducement programme.
“If this comes into place, I can tell you, we can make the $300 million by 2025. It will enable companies to go and invest into equipment, packaging, to manufacturing.”
Since 2014, exports from Samoa have been a growing share of gross domestic product, and the Government has already touted agriculture and exports as the ticket to Samoa’s recovery from the COVID-19 pandemic.
Exports as a percentage of G.D.P. increased from 3.4 per cent in 2014 to 5.1 per cent in 2018.
The proposal follows a Central Bank of Samoa scheme to fix the interest commercial banks in Samoa can pay on term deposit rates to no more than three per cent.
That policy aims to encourage banks to correspondingly drop the rate which they charge to lend out money, making cash cheaper to access for investors and to stimulate economic growth and new investment.
The Secretariat of the Pacific Community reports exports from Samoa increased 9.9 per cent between the first and second quarters of 2020, a major improvement from the 24.7 per cent drop between the last quarter of 2019 and the first of 2020.
But the country has had a 14.9 per cent decrease in exports compared to the second quarter of 2019 and even fell by 0.5 per cent between June and July.
It also recorded a 15 per cent decrease in imports compared to the first quarter of the year, and a 25.2 per cent decrease compared to the second quarter in 2019.
Imports grew significantly in February, and reports show slight increases in March and June, but overall compared to 2019 imports have slowed down this year, most likely due to shipping constraints because of the COVID-19 pandemic.
The private sector has been calling out for more assistance in recent months, with the most recent calls coming from the Chair of the Banker’s Association and President of the Samoa Hotels Association saying more money needs to go to the private sector, and soon.
The second quarter of the year shows Samoa’s private sector credit levels went up 6.6 per cent from the same time last year and increased from the first quarter by 1.1 per cent.
Each month this year has shown higher credit levels than last year.
Tagaloa said S.A.M.E. members and their businesses have spent the last few months struggling to survive and are desperate for either a cash injection or a genuine financial stimulus.
They have little appetite for training sessions or meetings, and are “focusing on surviving,” he said.
He is confident his scheme will work to help businesses geared towards export to do exactly that.