Stimulating investment in pearl farming in ... - World Fish Center

8. Taxation and incentives8.1 Direct taxation: business taxResident corporations (companies) and individuals are taxed on their global income. Nonresidentsare taxed on income derived in Solomon Islands. The profits of residentcorporations are taxed at 30%, non-residents at 35%. In calculating profit, deductionsfrom income are allowed only for costs incurred in producing that income.Capital expenditure is not normally a deductible expense (depreciation is deductible atprescribed rates). However, 100% deduction of capital expenditure is allowed for certainagricultural, livestock and scientific purposes, and it should be possible to make a goodcase for the same treatment to apply to development of pearl farming. Tax losses can becarried forward for up to five years provided there is no change of shareholder control.8.2 Direct taxation: personal income taxEmployers are required to deduct personal income tax (PAYE) from their employees’wages and remit the proceeds to Inland Revenue. Individuals are taxed on an incrementalscale. (In this section $ means SBD) Above a personal allowance of $7800 per year,income is taxed at 11% for the next $1-$15,000, 23% for the next $15,001-$30,000, 35%for the next $30,001-$60,000, and income above $60,000 is taxed at 40%.These rates were set some years ago. With the fall in the value of money the real rate ofpersonal tax is sufficiently high to induce significant concealment of income and taxevasion. Moreover a recent increase in the legal minimum wage has moved it above thepersonal tax-free allowance. This presumably unintended outcome needs rectification.Income tax is also collected through a withholding tax, deductible from payments toresidents and non-residents for a range of services and on dividends. There is reason tothink that in practice this tax is less than fully collected both in urban and rural areas.Nevertheless it forms part of the formal tax structure and would apply to pearl farming.A pearl farm investor would presumably devise a combination of personal residence andemployment arrangements to minimise tax payable in SI while complying with the law8.3 Indirect taxGoods tax is charged on the wholesale value of locally manufactured goods, and onimports, where it is charged at 15% of a notional wholesale price calculated as 130% ofthe sum of CIF value and any import duty payable. There are a number of categories ofimported goods exempt from goods tax, including scientific and research equipment. Itwill be worth requesting exemption from goods tax for any such equipment and otherspecialised imports required for pearl oyster development.Sales tax is charged on sale of fuel, travel, professional services and a range of otherservices. It does not apply to marine or agricultural products. A pearl oyster farm willhave to pay sales tax on many of its purchases but is unlikely to be selling goods or17