The Grassroots Corner July 24, 2023

  • by:
  • Source: FAIRtax
  • 07/27/2023

FAIRtax in Vanuatu?

So, where is Vanuatu?


Vanuatu is a tiny archipelagic nation in the South Pacific (see the above map), consisting of about 83 islands of volcanic origin. It has a population of slightly over 300,000. People of the Lapita culture may have traveled in canoes to settle the islands about 3,000 years ago, but we cannot be sure because written evidence does not exist. Europeans came through in the seventeenth through twentieth centuries, with the French and the British most recently administering the islands jointly, naming the islands the New Hebrides. The islands played a key role during World War II. Independence came in 1980 with the creation of the parliamentary republic of Vanuatu.

So, what’s important about Vanuatu? The EU, Australia, New Zealand, the IMF, and the World Bank are all putting pressure on this tiny nation to enact a corporate tax and an income tax. These powers say they want to standardize their tax regimes, but their real goal is eliminating tax competition. 

The Organization for Economic Cooperation and Development recently changed Vanuatu’s classification from a “tax haven” to a “low-tax jurisdiction.” Currently, Vanuatu has only a value-added tax ("VAT") of 15%, subject to a minimum threshold of $15,000 U.S., and a business license fee of 5%. 

Vanuatu has told these foreign powers “No,” and a recent election where the income tax was an issue validated that answer. The current prime minister’s party won on a platform opposing corporate and income taxes. After all, the tax code of Australia is 13,000 pages, and it took New Zealand five years to put its tax code together. One cannot put this burden on a tiny country like Vanuatu.

Recently, a Vanuatuan investor, Ian Kerr, reached out to Congressman John Linder, our original FAIRtax sponsor,  and our President Steve Hayes with a video showing the Prime Minister symbolically “burying” the corporate tax and the income tax in caskets. Here is the link:

Mr. Kerr thinks the opportunity is right to replace all Vanuatuan taxes with a single tax, and he is interested in learning more about the FAIRtax. There is also genuine interest among parliament members, who bristle at being told what to do by their larger neighbors. There are 1,200 registered VAT collectors for 5,000 registered businesses. With a one tax rate system, one could eliminate the business license fee and the current VAT, along with its high cost of collection.

Mr. Kerr thinks about 25% of the merchants are charging VAT. When asked about the political ability to get the "other 75%" to join the tax regime, Mr. Kerr noted that one could have a lower rate with broader participation. Increasing people's awareness of their contributions to the government would also be helpful. 

Steve Hayes noted that Vanuatu is starting from a “cleaner base.” It is in a unique position because of its small size and could get its larger neighbors to rethink their corporate and income taxes. 

On the outer islands, people are living on subsistence off the land. There is no welfare or government retirement pension system. Tourism is a significant component of the Vanuatuan economy. COVID hit hard, even though there was no COVID among the citizens. But COVID was keeping the tourists away.  Fortunately, they are now coming back. The country has graduated from “undeveloped” to “developing" with much aid. 

Congressman Linder will send Mr. Kerr a list of questions to research. Congressman Linder will be an excellent resource for Mr. Kerr and the Vanuatuan Government because the Congressman has “been to all the wars” here. 

When asked what we could do to help, Mr. Kerr said he needed to read up on the FAIRtax. Then, he called for a free-market economist to advise the government. Is this a job for our Dr. Karen Walby? 

We will have another Google Meet soon at a more reasonable hour for Mr. Kerr (it was midnight to him when we last spoke).

Do you know of a country like Vanuatu?
Jim Bennett
AFFT Grassroots Coordinator & Secretary


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