Economy needs long-term investment

06 February 2019

Dear Editor,

The comments on the Capital Gains Tax (CPG) that I made in yesterday’s Samoa Observer in the story titled “Capital gains taxes worry private sector” was made in the context of Samoa being a member of the WTO. Which has limited our policy space for revenue generation. 

It was made on the understanding that our economy is an isolated island economy. It desperately needs long-term investment for sustainable growth. We need our private sector to invest in productive growth through long-term investment. 

The Capital Gains Tax is removing this incentive. The proposal is to remove the current rate of 10% on gains realized within 12 months and the 27% Capital Gains tax on investments realized within 36 months and no capital gains tax on investments developed beyond 36 months with a flat 10% on all gains. 

The policy was actually different if you read the Samoan version because they reversed the taxation in that within 12 months the tax was 27% and within 36 months was 10% and then nil thereafter.  

Samoa has a real need to generate investment and long term sustainable investment and preferably through the private sector. 

At present Government is pressing ahead with investments to develop the economy and that is laudable. Despite that we have seen increased urbanization, increased crime and with the impact of Yazaki’s departure reductions in employment opportunities. We need taxation that encourages investment in production.

The CTG reverses this approach. The recent Press Release from the Samoa Bureau of Statistics says it all:

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“The favorable performance in the period was boasted by strong growth in wholesaling and retailing of food, beverages, stationeries and durable goods. This more than offset the decline in Primary and Goods-producing industries.”

Investing in importing, wholesaling and retailing is a successful venture. 

Risks are relatively low and as the Government is focused on reducing the cost of living it is working particularly where subsidies on imports are still being applied (albeit Green Box subsidies). 

The decline in Primary and Goods producing industries has been in place for the last 15 years and continues today. We need to as part of our taxation policy to look at how to reverse that trend not increase the decline. 

The UN goals clearly identify the need to address sustainability and it should form a cornerstone of our tax system as we are an isolated island country and need to develop our opportunities that come through our isolation.

The CGT was only to apply to immovable assets like land and houses but is to be extended to shares. That means investments in businesses shall now be subject to Capital Gains Tax. Gains made on investments off shore are actually exempt. So to grow Samoa you need to invest offshore. 

In addition taxation cannot be retrospective so any investments made before the envisaged change that  you kept for 3 years was exempt, however the intention now is to tax it and that is retrospective taxation. 

Grandfather rights should apply and all these investments changed to reflect the rights that are in place and be exempt from the proposed changes.  

 

Papalii Grant Percival

Concerned

06 February 2019

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