Over the three-year term of the newly-agreed USD17.8m Extended Fund Facility from the International Monetary Fund (IMF), the Seychelles' fiscal policy framework will be dictated by the Government's target of reducing public debt below 50 percent (from 65 percent) of gross domestic product (GDP) by 2018.
The IMF reminded the Seychelles Government that "fiscal policy faces negative pressures, as revenue and grants have been falling as a proportion of GDP, and current spending has been rising in the face of pent up spending demands." The IMF said the Government will need to "carry out wide-ranging structural reforms necessary to support improvement in macroeconomic conditions, lock-in [fiscal] stabilization, and reduce the country's vulnerabilities."
The IMF said that, although the Government's 2013 fiscal position was on-budget, tax revenue pressures have emerged. Business and income tax revenues were weaker than expected, offset to some degree by stronger-than-projected non-tax revenues. It said that attaining the primary surplus target for 2014 (four percent of GDP) "remains feasible and appropriate."
The IMF noted that after considerable reform over the last five years – including the introduction of a value-added tax regime and an overhaul of income and business taxation – there is little space for substantial reform to expand the tax base. At over 30 percent, Seychelles' revenue-to-GDP ratio remains relatively high, and the IMF therefore recommended "reforms to tax administration and increased compliance... to bolster revenue efforts and ensure the availability of resources for investment and other priority spending."
Authorities in the Seychelles agreed to streamline exemptions, adjust specific excise taxes, improve audit capabilities, and strengthen tax compliance, in particular with regard to international tax matters.
Transfer pricing is one area in which the Government hopes to make significant headway. It was noted that the hotel industry "tends to pay little in business taxes, although this in part reflects a legacy of generous past tax concessions."
Seychelles Agrees Tax Policy Focus With IMF