Small businesses asked about extra tax

Should small businesses in Samoa pay tax?

Some do – but most don’t, according to the Ministry of Revenue.

About 2,700 small businesses are paying just $1 million tala in tax, representing one per cent of the country’s tax bill.

That is the finding of an issues paper released by the Ministry this week, at the start of a consultative process aimed at generating debate about whether small businesses should be paying a larger share of taxes. Government is asking the business community to consider a small business tax, not as a new tax but to replace ‘standard’ income tax. Small businesses are currently defined as those turning over less than $78,000 tala a year.

Averaged out, that means small businesses are paying about $370 tala each a year, or $7 tala a week.

These figures compare with those from the Ministry of Finance, which calculates about $500 million tala is raised each year in Samoa from income taxes, import levies and company taxes. In their issues paper, Ministry of Revenue officials said that, worldwide, small businesses generally make up about 80% of all businesses within a tax system, yet pay only 20% to the total revenue collected.

A survey late last year showed there was a “high level” of small businesses not paying any taxes .

“These sole traders contribute a total of approximately $1 million income tax annually which is only around 1 per cent of the total income tax paid in Samoa,” reads the paper. Small business owners had a “low understanding of tax as the laws and procedures are very complicated.”

About 91 per cent of sole traders only have primary school as their highest level of education. Sole traders could not afford tax agents or accountants, and have cash flow problems because daily earnings are quickly used up to meet “numerous expenses.”

Other business challenges such as mechanical breakdowns for taxis and buses meant that sole traders mainly “focus on daily survival of family, not business planning and administration.” Building on overseas examples, revenue is proposing two main options for collecting tax from small businesses.

One option would be to charge tax to a limited range of small businesses – in this case transport owners and small shops. A second option is to tax all small businesses. Under either option, different methods could be used to charge taxes.

One method would be a percentage of turnover tied to the Consumer Price Index, with the percentage going up or down. About 20 people showed up for the first consultation at the Development Bank building yesterday morning.

An overview was given by Assistant Chief Executive Officer of Policy, Forecasting and Business Improvement, Tui Faasili, with objectives raised by consultant Neil Motteram, a former Treasury official from Australia, and options covered by Ian Filemu, a tax inspector.

One small business owner q u e s t i oned appl yi n g t h e Consumer Price Index, saying he had concerns about people facing a “double hit” of higher taxes and higher prices.

“We don’t want a system where it makes people poorer,” he said.

“We don’t want a country where we are taking the tax out from them and it’s making the people poorer and poorer.”

One woman suggested that small businesses would benefit most from a system that allowed payments to be made in small amounts, preferably weekly.

Speaking after the presentation Revenue Chief Executive Officer Pitolau Lusia Sefo-Leau emphasied that any small business tax would not be a ‘new’ tax.

“It’s not a new tax, it’s a different way of making small businesses compliant with the law – and making it simple rather than complicated.”

Pitolau said no immediate changes are planned. The current consultation would extend throughout the rest of the year with law changes being looked at next year.

Small business taxes may be based on income, number of seats in a taxi or bus, or the size of the shop floor.

Submissions to the ministry on small business tax are welcome, with a deadline of 4th April.