Budget Speech 2022 by the Minister for Finance, Economic Planning and Trade, Naadir Hassan, on Friday November 12, 2021 |13 November 2021
‘Ensuring that wealth is shared in a sustainable way’
Honourable Leader of the Opposition,
Honourable Leader of Government Business,
My fellow brothers and sisters, people of Seychelles.
Mr. Speaker, the year 2021 has remained one of the most difficult periods in our country’s history. The Covid-19 pandemic has continued to scourge the world, and our small Seychelles has not been excluded. Its repercussions on our economy still persists. As I explained in the 2021 budget address, and repeatedly in the National Assembly, the government’s priority in 2021 was to stabilize the country’s financial and economic situation. I explained that our situation was critical, even critical. As such, it would require very hard work to stabilize the situation and prevent our country from going under.
During these past months, the staff of the Finance ministry and Central Bank have worked very really hard to ensure that we come up with a plan to save our country. In late July, Seychelles came to an agreement with the IMF with regards to a financial reform programme which also included financial assistance for us during this difficult period. This reform programme will put us back on track.
Mr. Speaker, before I move on to the 2022 budget, I would like to give an overview of our current financial situation since I presented the 2021 budget, up to now. To better facilitate comprehension, Mr. Speaker, I will list our financial situation in terms of where we were before, and the progress that has been made up to now.
In the first place, you will remember that I delivered my first Budget Address on February 16, 2021. During that time, the financial situation of the country at the start of 2021 were as follows:
- In the first three months of the year 2021, there were only 6,785 tourist arrivals in Seychelles;
- In that same period, the foreign currency that went through our banking system and Foreign Exchange Office amounted to only $118 million;
- During these first three months, one dollar had an average cost of R21.50;
- During these first three months, the government, through the Seychelles Revenue commission (SRC), collected only R1.4 billion in taxes.
- Our primary fiscal deficit for the year had been predicted at 11.8per cent of our GDP;
- Our economic growth had been predicted at 2.08per cent only.
- The government bank account with the Central Bank on the 14th January 2021 was in overdraft by R152.7 million.
The situation I have just presented, Mr. Speaker, was one, which was very disquieting for our Administration. There was serious imbalances in our expenses and revenue. Our expenses surpassed our revenue by a large margin. Basically, we were in the red. I could even go further to say that the financial situation of our country was in ICU. This is not an exaggeration, but rather, the reality.
So, Mr. Speaker, it was in this context that our Administration had to set its priorities for its first financial year.
We had to take action. Actions that were not easy ones to take, but which were nevertheless, necessary, if we were to start filling in the holes into which we were sinking.
- Government Objectives for the Year 2021
What were the government’s objective during this first year? It was to stabilise our economy and make our debts become more sustainable. This was our target for 2021, as I pointed out in my 2021 Budget Address. So, are we reaching this target?
Here again, I will list the recent official statistics, to show what progress has been made.
- At the end of October, tourist arrivals had reached a total of 133,966 – which was a remarkable increase and we are forecasting a total of 162,391 visitors for the year 2021;
- From April to September, the foreign exchange that went through our banking system and foreign currency bureau had experienced a substantial increase, arriving at USD366 million.
- In this same period, the average rate of one dollar had gone down to R15
- At the end of September 2021, Government had collected R4.8 billion in taxes through SRC.
- Our primary fiscal deficit for the year is now predicted at 6.6 per cent of our GDP
- Our economic growth is now predicted at 6.1per cent.
Today, I can declare that the most difficult period is behind us. Our economy and financial situation have stabilized and we have begun the long process of rebuilding our country. Mr. Speaker, we have come very far. Moreover, after the first review under the Extended Fund Facility (EFF) program, which has just completed on Monday the 8th of November, the IMF Chief of Mission, stated that the economy have made impressive progress until now.
However, as I have mentioned, even though we have made significant improvements, our economy has not 100 per cent recovered and things are not yet back to normal. We still have a lot to do.
I have really appreciated the fact that many Seychellois have listened to my call for national unity and have worked together for the greater good of our country. This is the main reason why we have survived this difficult period. Today I will once again appeal for continued solidarity towards the reconstruction of our country. At the same time, let us be reminded that any political and social instability will have serious repercussions on our economy. I would like to appeal to all political entities, workers’ unions and others, to maintain the stability of our country. If the country is unstable, it will be the Seychellois people who will suffer. Let us not make this mistake. Let us not try to win power at all costs. Some costs will be too high.
- Development on a global scale and its local implications
Mr. Speaker, currently, there is still a lot of challenges and uncertainty in the global economic environment. In many parts of the world, the Covid-19 pandemic is yet to be put under control, and many countries have not reached their vaccination targets. As economic activities start to pick up globally, inflation rates are also rising. At this point in time, the price of commodities is higher than it was in 2020, and it is expected to remain high in 2022.
Statistics have shown that the inability to meet the demand for commodities is a key factor in the price hike. The rise in demand as a result of economic activities that have increased much faster than was expected in certain countries, interruptions in food production and difficulties to link up maritime transportation has resulted in a gap between the demand for commodities and the volume that can be produced in the short term.
When the COVID-19 started to impact the world, many businesses cut down on their output, so when economic activities resumed in 2021 and there was a rise in demand, certain businesses were not ready to cope with this demand. Furthermore, the distribution of containers used for transportation has also been affected as a result of the number of empty containers that got stuck in different ports when the COVID-19 transmission was at its highest peak.
Seychelles has also been affected by the disruption in maritime transportation as a result of changes in commercial systems across the world, and the ability of shipping companies worldwide to manage the amount of cargo that needs transportation. This has resulted in a lack of certain commodities locally. Most financial analysts believe that this situation will persist for a while.
On the subject of the price of fuel, on average the price was $42 a barrel in 2020, compared to $82 a barrel in November 2021. This is 95per cent higher than the price of 2020. However, the price of fuel is expected to go down in 2022 to an average $72 a barrel in view of the expected increase in production.
The increase in the price of commodities and the cost of transportation has caused a rise in the cost of living locally, in 2021, and it is expected that this will have an impact on inflation in 2022. However, the general price rate is expected to go down in 2022, compared to 2021, the main reason being that the price of fuel is expected to down as the rate of production goes up. Nevertheless, if the challenges associated with trade persists, the inflation rate at domestic level could be higher than had been predicted.
With all the indications that there might be more pressure on prices, Government is going to initiate an exercise to review the allocation of weights for social assistance, for those on lower incomes. At the same time, STC will continue to improve on the efficiency of its operations and its procurement system to ensure that the price of basic commodities does not increase.
- Review of economic performance and the economic context for 2022
Mr. Speaker, 2020 was an exceptional year for Seychelles. With the COVID-19 pandemic, the social-economic challenges in our country brought to a head. In addition, global trade was faced with new challenges. In fact, the economic contraction of 9.9 per cent that was recorded in 2020 is the highest that has been recorded. In addition, as a result of the policies implemented, Government debt increased from 58 per cent to 92.2 per cent of our GDP.
In 2021, in spite of the fact that the COVID-19 pandemic was not yet over, we had no choice but to put our economy on a more sustainable path. In addition, we had to apply lessons learnt in the past for a better future for Seychelles.
So, in the face of the new reality and even bigger challenges ahead of us, we cannot ignore the effect that our debt levels will have on the future generations. It is for this reason that it is necessary to implement policies that not only bring about a more diversified economy but also take into consideration the need to be more sustainable in everything that we do. To bring about this transformation, we need a more modern and more efficient public service.
In simpler language, we have to do more with less, and the difficult decisions ahead of us will impact on us for several generations. This is our new reality, and these are the challenges that we have to face and surmount, as a country.
Mr. Speaker, for the year 2022, GDP growth is projected at 7.2 per cent which is higher than the previous estimates and in line with a stronger 2021 recovery. In 2021, real GDP growth is estimated at 6.1 per cent reflecting a marked improvement over the 9.9 per cent contraction in the pandemic year 2020.
Mr. Speaker, following the severe downturn in the tourism industry in 2020 as a result of the COVID-19 global pandemic, 2021 has seen a remarkable recovery. In the third quarter of 2021, average weekly arrivals stood at 4,285 visitors compared to 443 visitors in quarter one of 2021. As at October 2021, total arrivals stands at 133,966 reflecting an increase of 39 per cent compared to the same period last year. The main markets contributing to this strong year to date performance are originating mostly from Russia, Israel and UAE.
As a result of this faster than expected recovery in tourism arrivals, higher growth is expected in 2022 for the main tourism related activities, namely ‘Accommodation and food’ by 46 per cent, ‘Administrative and support’ by 36 per cent, and ‘Transportation and storage’ by 24 per cent.
Growth is expected to remain strong at 7 per cent in the Information and Communication Technology sector. For 2022, Agriculture growth as well as Fisheries growth is estimated at 3 per cent. Both sectors are expected to fare relatively well, given continued policy support for food security reasons.
We are expecting more construction activities in 2022, thus we are forecasting a strong growth of 6 per cent. In 2022, higher growth is expected for electricityat 3 per cent and water at 2 per cent, mainly due to continued buoyant tourist arrivals forecast. We are assuming a conservative growth of about 3 per cent for the wholesale and retail sector. The Financial and Insurance sector is expected to maintain a growth of 5 per cent similar to 2021.
- Overview of fiscal performance in 2021
Mr. Speaker, with regards to our fiscal performance for 2021, Government has projected a primary deficit of 6.6per cent of our GDP by the end of the year. This is equivalent to a primary deficit of R 1.6 billion compared to R2.6 billion which was originally projected in the 2021 budget.
At the end of 2021, our total income, excluding donations, is 6.4per cent, or R453 million higher than we had predicted for 2021. Thus, our revenue is R7.5 billion whilst we had predicted R7.1 billion .
Our revision with regards to total expenses for 2021 is R10.4 billion instead of R11.7 billion as had been predicted at the beginning of the year.
And, Mr. Speaker, you will remember that we came before the National Assembly to ask for a supplementary budget of R303.9 million. However, we also presented a budget reduction of R1.4 billion.
- 2022 Budget and fiscal performance in the medium term
Mr. Speaker, the National Assembly approved a total sum of R11,013,648,296 for expenses in 2021. There was also a reduction of R1,125,511,765 during the 2021 mid-year budget review exercise. Thus, total expenditure for 2021 amounts to R9,888,136,525 only.
For the 2022 fiscal year, we are proposing a total expense of R10,091,651,146. We are also expecting to collect a total of R9.7 billion in revenues and donations.
Mr. Speaker, even if our expenses have gone up by R203.5 million or 2.1 per cent, when you compare to the revised 2021 budget with the proposed budget for 2022, we are projecting a primary deficit of R222.1 million or 0.8 per cent of our GDP for the 2022 fiscal year, compared to a primary deficit of R1.6 billion or 6.7 per cent of our GDP for our revised budget for the 2021 fiscal year.
At the end of 2020, our stock of debts had reached 92.2 per cent of our GDP. We expect to end 2021 with a debt stock of 81.2 per cent of our GDP.
Mr. Speaker, with the budgetary deficit, which has been reduced for the 2022 fiscal year, we expect that our debt stock will be reduced to 76.0 per cent of our GDP by the end of 2022. We are also expecting to have a budgetary surplus by the start of 2023. With this surplus, we are expecting that our debt stock will be below 70 per cent of our GDP by the end of 2023.
- Revenue Collection for 2022
Mr. Speaker, for the year 2022, we are expecting to collect a total of R7.86 billion in tax revenue, compared to R6.69 billion in the 2021 revised budget. This increase is principally associated with growth in the tourism sector compared to 2021.
Non-tax revenue collection for 2022 is being budgeted at a total of R1.07 billion compared to
R822.1 million in 2021. The highest increase in revenue collection is in the dividends from public enterprises – from R375.3 million to R590.3 million.
Revenue collection from donations from our partners abroad has also increased from R605.9 million in 2021 to R782.1 million in 2022. The principal reason for this are the projects that could not materialize in 2021 because of the Covid-19 pandemic.
- The Context of the 2022 Budget
So, Mr. Speaker, the principal objective of the 2022 budget is to continue to make Government debt become more sustainable. Our priority is to consolidate Government expenditure and to make the public service more efficient. We will also continue to work with the Seychelles Revenue Commission to modernize the system they are using and make revenue collection become more efficient. Mr. Speaker, SRC has been allocated a sum of R 231.6 million in 2022, compared to R137.2 million in the revised 2021 budget. Apart from a new system to modernize SRC, we are also working with international partners to recruit customs and tax auditing experts to assist SRC and train its employees.
In line, with the declaration in the 2021 budget, Government will keep on working with these five sectors to ensure that there is more growth in these sectors in the medium term:
i. The Tourism Sector
ii. The Agricultural Sector
iii. The Fisheries and Blue Economy Sector
iv. The Digital Economy Sector
v. The Financial Sector
9.1. Government Expenditure
9.1.1. Wages and Salaries
Mr. Speaker, the budget for wages and salaries projected in 2022 represents a total of R3.10 billion or 11.2 per cent of our GDP. This sum is an improvement on the 2021 budget in which wages and salaries represented 12.5 per cent of our GDP. The strategy is to ensure that the budget for wages and salaries remains sustainable in the medium term, which should normally represent 11 per cent of our GDP.
As at October 2021, there were 10,849 employees in the public service. In the budget projected for 2022, we are also limiting new recruitments. However, there are 426 posts for replacement of personnel that have left the public sector, 223 posts that are budgeted in 2021 for recruitment and 84 new posts for recruitment in 2022. Therefore, there are a total of 733 posts amounting to a total of R215.8 million, for which ministries and departments can recruit.
Mr. Speaker, for the year 2022, as in 2021, there will be no increase in the salaries of public service employees, and there will be no increase for long service allowance. There will be no increases in the salaries of employees on contract, at the end of their contracts. Mr. Speaker, I am aware that there is a lot of expectation in the public service, with regards to salary increase due to a rise in inflation. However, we are still facing a lot of risks in our economy, so I will ask public service employees to be patient. It is Government’s priority to bring about a surplus in our budget, which will allow us to increase salaries, especially for those in the lower income brackets.
Government is working on a new salary framework for the public service, and we expect to apply this new structure in the 2023 budget. Currently, many allowances are incorporated in the total salary package of public employees. The first exercise to be carried out, will be to consolidate the fixed allowances into basic salaries. This initiative to include fixed allowances as part of the basic salary, will help the public employees when accessing loans, since the commercial banks are not taking into account these allowances while considering the loan application.
Mr. Speaker, I will later on speak about the results based management framework in the public service. Currently, there are many schemes for public servants such as gratuity, end of contract payments, and in the past, there was also a thirteenth month salary. These schemes cost about R242 million per year. Mr. Speaker, we are working on a framework which will allow employees to be paid on the basis of their performance at the end of the year, according to targets which have been set. We expect to complete work on this new structure in 2022, and we also intend to consult employees during this process.
9.1.2. Goods and Services
Mr. Speaker, a budget allocation of R3.03 billion or 10.9 per cent of our GDP has been assigned to Goods and Services for the 2022 fiscal year. This sum is comparable to the 2021 fiscal year, which was 12.3 per cent of our GDP. We have to work with the different sectors to become more efficient in expenses for Goods and Services. This will allow us to invest more in Capital Projects. This means that we need to do more with less.
For 2022, we will work closely with the Education Sector and the Health Sector to review their expenditure and see how we can become more efficient in these sectors. These two sectors alone represent a total of R967.5 million or 32 per cent of the total budget in Goods and Services.
The Ministry of Health will continue to receive an important percentage of our national budget. In 2022, the health sector is receiving R579.9 million for Goods and Services, or 19 per cent of the total budget for Goods and Services.
Government recognizes the fact investing in our nation’s health is also an important investment in this nation’s development, and in our people’s future, because a people who is in good health is a people who can produce a reliable workforce to support the economy, and make it possible for the nation to develop to its full potential.
The COVID-19 pandemic has shown us that when we talk about health, we have to first talk about prevention and human capacity development. Prevention is always better than cure.
The Ministry of Health is putting more emphasis on prevention and human capacity development in all its dimensions, through a new ‘primary health care package’, so that at the end of the day, there are less people who stand the risk of contracting non-transmissible diseases, less people abusing substances such as drugs, alcohol and cigarettes, and much more people who are physically active and who consume food that is good for health. This is the basis, and it needs to be much more solid than it is currently.
The Ministry of Health’s prevention programme will intensify in schools, in families and in communities, so that with time, there will be less people with diabetes, high blood pressure, kidney complications, cardiovascular diseases and cancer. It is precisely these diseases that cause the health budget to remain high. Currently, the dialysis programme costs more than 10 per cent of the Ministry of Health’s total budget. The ministry will have to address this problem, not only through prevention but also by taking other measures for better efficiency.
Mr. Speaker, in the performance evaluation process of the Health Care Agency, we will have to look closely into the following expenses:
i. Medicine - R35.2 million
ii. Laboratory Supplies - R31.1 million
iii. Haemodialysis - R55.9 million
iv. Medical Supplies - R65 million
v. Food Supplies for patients - R27.4 million
vi. Specialized Medical Treatment - R70 million
Mr. Speaker, we will intensify our efforts to push through reforms for better efficiency in the public procurement framework. As announced in the 2021 budget address, we are reviewing the Public Procurement act. This exercise is taking a bit longer than had been anticipated, but we expect to complete it in 2022.
However, Mr. Speaker, we have to come up with certain amendments to help simplify procurement procedures in Government, and also to get more value for money. Mr. Speaker, the existing law does not allow for Government to negotiate prices with the entities that are chosen to supply goods or services. The procedures to negotiate exist in the private sector, but in the public sector, we have to make the process more transparent. Mr. Speaker, we have to find ways of making more savings, whilst ensuring that we maintain the principles of procurement.
By the end of 2021, we expect to have a comprehensive report on the security services. Government will work on procurement procedures for security services based on this report. Government has also reviewed the tendering procedures for cleaning services and we expect to complete this work in the first quarter of 2022.
Mr. Speaker, we have made an allocation of R69.9 million for the cleaners corporative in the 2022 budget, for cleaning services for Government offices. The Finance Ministry is evaluating the existing system to see how we can get a more efficient cleaning service from this organization. A decision must be made on whether we are going to maintain the structure of the cleaners corporative as it is currently, or transfer its workers to the ministries, departments and agencies. This exercise is expected to be completed by the end of 2021.
9.1.3. Capital Investment Programme
Mr. Speaker, a total budget of R1.53 billion is being projected for the 2022 fiscal year, representing 5.5 per cent of our GDP. This is a considerable increase when compared to the 2021 budget, which was only 5.0 per cent of our GDP.
Mr. Speaker, as Government has announced before, we recognize the fact that there are many challenges to implementing capital investment projects currently. It is for this reason that Government has created the new Agency for Infrastructure, to bring about better coordination and supervision of project implementation. It will also help to establish better standards and better efficiency in the planning of Government projects. We thus expect a great improvement in this area in 2022. This agency will also put in place an electronic system for better supervision of employee performance, and it will work on a project implementation calendar that corresponds the 2022 budget.
Mr. Speaker, the 2022 budget will facilitate the implementation for the construction of 51 houses, which already started in 2021, and the infrastructure needed for 116 land parcels as part of the land bank project. The 2022 budget also provides for the construction of 37 new houses and 88 new parcels of land.
Mr. Speaker, the Ministry for Land and Housing will explore other opportunities with regards to the quality and standards, as well as costs for the construction of houses. This will help in the review of affordable houses. We have discussed and come to an agreement with GICC regarding the construction of condominiums for professionals, and Nouvobanq has agreed to offer loans at an interest rate of 5.5 per cent and a repayment plan of up to 30 years. Government is also appealing to other commercial banks and the private sector regarding the financing and construction of accommodation projects at an affordable price.
Mr. Speaker, a budget of R3.3 million and R11.6 million is being allocated in the 2022 budget for the Police Force for the renovation of the Central Police Station and a new police station for La Digue respectively.
Government has allocated a budget in 2022 for the Health Sector, as follows:
i. Construction of the new La Digue hospital - R53 million
ii. Construction of a rehabilitation centre - R34.5 million
Mr. Speaker, we have also allocated R11 million for the renovation of different sports infrastructure as follows;
i. R2 million for renovation of Unity Stadium
ii. R2 million for renovation of Palais Des Sports
iii. R3.75 million for renovation of Anse Royale Sports Complex
iv. R1.75 million for renovation of La Digue Sports Complex
v. R1.5 million has been allocated for the renovation of other sports infrastructures.
There is an allocation of R42 million in the 2022 budget for the Industrial Authority (IEA). Apart from the infrastructure on zones 6 and 20, and Eve Island, a project for an industrial marine park will start in 2022. This project will be of use for workshops and appropriate venues for marine engineers and auto-mechanics.
The Ministry of Local Government and Community Affairs will receive an allocation of R20 million for small community projects. This is a considerable increase compared to R10.5 million in the revised 2021 budget.
Mr. Speaker, as you are aware, Government is spending an average of R179.3 million per annum on rent. We need to come up with innovative ideas on how to reduce this sum in the budget. We are working with GICC on the construction of a new building for the SRC, and we expect that this project will be completed by mid-2023. Currently, SRC is spending R19.220 million in office rental. Through a PPP, GICC will undertake the construction of a building for SRC, and Government will pay GICC through the budget. In the long term, this building will be transferred to Government. An allocation of R5 million has been made in the budget to start paying the interest on this loan.
Mr. Speaker, we are also working jointly with GICC on the renovation of the National Cultural Centre (National Library), and we expect that this project will be completed by the end of 2022. This project has been delayed for too long, and it is not acceptable as a country, that our National Library is not open to the public. The plan is to develop this building so that it becomes a learning centre for our population. An allocation of R3.5 million has been provided to pay the interest for that loan.
Mr. Speaker, we also expect that the rehabilitation and expansion project of Port Victoria will begin in 2022. The first phase of the project will cost Euro 29.7 million and is being financed by Europrean Investment Bank (EIB) and Agence Francaise de Development (AFD).
The Ports Authority also expects to complete the new passenger terminal on Eve Island in 2022. This authority will also engage in construction work to align the quay wall and begin dredging on its base on La Digue. SMSA is also working on the modernization of its information technology system.
Mr. Speaker, today our airport does not reflect our image as a five star destination. We need a more modernized airport. Government is working closely with SCAA on the different options for developing the airport. SCAA is also evaluating the condition of the runway.
Mr. Speaker, the budget proposed for 2022 by SFA for the artisanal fishing sector is as follows:
i. The market at Cascade; R4.3 million,
ii. The market at Anse Aux Pins ; R9.1 million,
iii. Glacis: The market is being tendered and the storage space for fishing equipment is in the planning stage.
iv. Grand Anse Praslin: The installation of an ice machine has begun. The construction of a storage space for fishing equipment and the renovation of the market are in the planning stages, and
v. Baie St. Anne Praslin; R11.4 million to build a market facility, gear store and pontoon. Work started on these facilities in September.
All of these projects will be completed by November 2022 at the latest.
New projects at district level for the 2022 fiscal year includes:
i. The Anse à la Mouche project which will be implemented in two phases. The first phase comprises of opening the pass where fishermen will offload their fish and take ice. This project has been budgeted at R2 million. The second phase which will start at the beginning of 2022 and end in 2023, comprises of basic facilities for the market, and storage facilities to keep equipment. This project has been estimated to cost around R3 million.
ii. The English River project is being discussed with the stakeholders. This project is supposed to include the land reclamation, the construction of the market, the equipment store and the pontoon.
iii. We are looking into the possibility of building a small market at Beau Vallon. With the necessary consultation and permission, SFA will build a market that will benefit the community.
iv. Following consultations with La Digue fishermen and community, SFA is going to install a pontoon and an ice-maker at La Passe to facilitate fishing activities and avoid crowding at the La Passe jetty.
9.1.4. Benefits and Programmes for the Agency for Social Protection
In the 2022 budget, the largest envelop is a sum of R1.44 billion social benefits and programmes under the Agency for social Protection as follows:
- R820.6 million for retirement benefits
- R109.4 million invalidity benefits
- R141.8 million disability benefits
- R299.4 million for the Home Carer Scheme
- R40.7 million as a ‘Safety Net’
Mr. Speaker, as already initiated in the 2021 budget, we have removed the management of certain schemes from the Agency for Social Protection and transferred them to other entities as follows:
- R27.95 million for the Day-care scheme to the Institute of Early Childhood Development (IECD)
- R9.2 million for the travel concessions of the pensioners and people with disabilities to SPTC
- R1.2 million for inner islands transport scheme for medical references, to the Ministry of Health,
- R2.4 million for assisting individuals in emergency circumstances such as fire or natural disasters, to the ministry responsible for Local Government.
Mr. Speaker, for the 2021 fiscal year, we have budgeted R50 million under contingency. In view of our financial challenges, Government is not yet able to pay the second phase of the compensation for the La Misere water pollution cases. We will postpone this to the medium term budget.
- Fiscal Measures
10.1. Tax Reform
10.1.1. Business Tax Reform
Mr. Speaker, as announced in the 2021 budget, Government is working on a reform in the business tax regime, which will be implemented by the beginning of January 2022.
Through this reform, we wish to place emphasis on the harmonization of various existing taxes in the business tax act and introduce a single regime.
Currently, the tax rate is 25per cent on profits of up to R1 million and 30 per cent on any profit above R1 million.
The new tax rate on business profits will be as follows:
- 15 per cent on profits of up to R1 million,
- and after that, 25 per cent on profits of above R1 million.
Mr. Speaker, this new tax proposal will also be applicable to sectors which previously had a preferential rate such as tourism, fisheries, casinos, International Corporate Service Providers, businesses listed on Seychelles Securities Exchange, and businesses linked to medical services. Bearing in mind the Government’s objective of developing and expanding our agricultural sector, this sector will obtain a grace period on tax payment for three consecutive years, starting 2021. After this period, there will be a review on the tax modalities that will be implemented.
Mr. Speaker, it must be noted that fishermen and other individuals in the fisheries sector will continue to benefit from the current exemption.
Mr. Speaker, nevertheless, taxes on businesses in the telecommunication services, banking, insurance, alcohol and cigarette production will remain at 33 per cent on profits of above R1 million.
Government will maintain the presumptive tax rate option that is charged to small and medium enterprises, with revenues of under R1 million per annum.
Secondly, we will reduce the accelerated depreciation rate on capital investment that reach up to 145 per cent in 5 years, apart from buildings. The rate will reduce to 100 per cent and the incentives was being applied to businesses linked to tourism, agriculture and fisheries compared to other sectors.
Thirdly, tax deductions on salaries of employees graduated from professional centres will be 125 per cent. Previously, it was 200 per cent. This percentage will also apply to the salaries of students from professional centres who are on part-time employment. Their rates will be reduced from 150 per cent to 125 per cent.
Mr. Speaker, we are also working closely with the OECD on the taxation of revenues collected by multinational entities, through principally online operations. Bearing in mind the complexity of tax collection on such transactions, we shall begin a series of consultations in 2022, with the aim of putting in place this regime by 2023.
We are also working jointly with the World Bank to propose other amendments in business tax act with regards to transfer pricing.
10.1.2. Licensing conditions for the Retail Sector
Mr. Speaker, we are fully aware of the existing challenges to appropriate revenue collection in the retail sector. Government is thus putting down the following additional licensing conditions for this sector:
i. Every entity will have to have a cash register
ii. Every entity will have to have a point of sale machine to give their clients the option of paying with their bank cards.
We will be working on a second phase to connect cash registers directly to the Seychelles Revenue Commission system. Government is in discussion with a bilateral partner to finance this system.
We shall also impose the same conditions on other sectors in the future.
With the assistance of the IMF, we will undergo a review of the VAT implementation to minimise any abuse in the collection of tax revenue.
10.1.3. Revisions on the framework of taxes charged to charitable organizations when they receive donations
Mr. Speaker, every so often, charitable organizations have to pay taxes to Customs on donations received from the private sector. We shall work on a framework to ensure that there is better transparency and justice in this procedure.
10.1.4. Income Tax Reform
Mr. Speaker, we will be reviewing the second schedule in the Income and Non-Monetary Benefits tax act, to bring more transparency to those salaries that are not taxed.
Mr. Speaker, currently, when an employee receives a back pay, he/she pays a higher tax on it than the regular monthly tax deducted on his/her salary. We find this to be an unfair. The reason for this is that currently the ‘exempt threshold” of R8,555.50 is for a month only. In order to address this issue, we shall review the tax system on salaries so that it becomes fairer.
In the medium term, we will review the income tax system to allow deductions of employees’ expenses. We shall be able to implement this once we have completed the implementation of the SRC’s tax system.
10.1.5 Remove the temporary Excise Tax on Passenger Vehicle
Mr. Speaker, in January this year, because of the economic crisis and the decreasing level of foreign exchange in our system, we introduced a temporary additional tax on passenger vehicles. We announced this measure would remain in place until there was a positive change in our foreign exchange reserve and the exchange rate stabilized.
Mr. Speaker, as you have noticed, our fiscal and monetary measures have helped to stabilize the foreign exchange rate, and our policies have helped to bring our foreign exchange reserve to an acceptable level, and it is for this reason that Government announced in September that the temporary Excise tax will be removed on January 1, 2022. The three-month notice is to ensure that local companies have enough time to make their business plans and prepare for this change.
10.2. Sustainability of Seychelles Pension Fund and Retirement Benefits
Mr. Speaker, according to the last actuarial evaluation, which was carried out on the Pension Fund in 2018, the Seychellois citizens are living longer. Since 2019, the contributions collected by the Pension Fund from its members are not enough to pay all its benefits, which continue to increase. The recommendations were made to the previous administration on the measures needed to be taken to ensure sustainability of the Pension Fund. However, no decision was taken. If this continue, the SPF reserve will diminish and the fund will collapse.
One of the first recommended measures is to increase the age of retirement from 63 to 65 as of 2023. In addition, the Pension Fund will put forward options for retiring at 60 subject to receiving a reduce pension.
Pension Fund will start a series of consultations with the public and private sector for the discussion of the current situation of the fund and options to be considered to ensure sustainability of the pension fund. At the end of the first quarter of 2022, when SPF complete the consultations exercise, they will present their recommendations to government for implementation.
10.3. Public Service Restructuring
Mr. Speaker, since 2013, Government has been implementing a framework based on results and performance, in different phases. This framework is known as the Results Based Management or RBM. RBM is an integrated approach which measures performance, in line with budgetary and planning procedures. This approach is used by many other governments. In August this year, Cabinet approved for RBM to be implemented across the board in Government. This shows our commitment towards obtaining the best results in the public service.
The RBM approach inculcates the principles of efficiency, transparency and accountability. Furthermore, it focuses on individual and organizational performance. It is important to note that for the RBM system to work, there must be an effective planning strategy and a budget that encourages high performance, following an evaluation that is correct, with the appropriate performance evaluation systems in place. With these systems in place, it is expected that public service delivery will be much improved. It is equally important to note that RBM is not only a system, but also the new principle and work ethos of the public service. In fact, an important factor for success in future is the changing of mind-sets among public service employees, where they take more responsibility in this reform agenda.
So, RBM will improve efficiency in the operations and resource allocation in the public sector, and create more fiscal space for the provision of public services that are more essential. For Seychellois citizens, this will mean:
- More services addressing the weaknesses in health services, education, natural resources management, water and sanitation, energy, infrastructure and other basic services. This will be done through effective evaluation of social and financial impacts. Through this, we will achieve:
- Better services to improve the quality of life at different levels of our population.
Just to add, the full implementation of RBM will be planned according to each portfolio. This means that each portfolio will guide its departments and agencies in this procedure through strategic and budgetary planning, follow-up measures and performance evaluation. This will ensure the accountability of ministers and other high ranking officials, as well as institutional budgets. Additionally, each portfolio will be able to produce a comprehensive strategic plan and good annual performance plans. This will ensure that all government entities really plan for service delivery and results, effectively changing the mind-sets of government employees, encouraging them to give their highest performance according to their organization’s strategic plan. This will be based on continuous improvement, which is the best way for service delivery and accomplishing our national objectives.
Mr. Speaker, we recognize the fact that this transformation in the public sector will require the necessary training for our employees. Thus, Government is making an allocation of R2.5 million in the 2022 for a collaborative programme with the Guy Morel Institute, with regards to these trainings. The institute will play an important role as the ‘Public Service College’ for Government.
Mr. Speaker, in this new way of operating, we will also review the role, mandate and structure of the Department of Public Administration (DPA). DPA will establish the frameworks and standards, and decisions concerning human resources will be made by the ministries, departments and agencies. This will be a more decentralized model to give ministries, departments and agencies more autonomy. However, they will have to follow the agreed framework. We will also create a Public Sector Commission to appoint senior executives in the public sector to ensure there is better transparency in the appointments and no mediocrity. This will remove any political agenda in the appointment of senior executives in the public sector.
Mr. Speaker, we will also review the function of the accounts section in the public sector, which was centralized at the Ministry responsible for Finance. In January 2022, all the employees in the accounts section will be transferred to the respective ministries, departments and agencies. However, the Ministry responsible for Finance responsible will continue to work with these employees to ensure that all procedures and standards are in place and to prevent any abuse in Government expenses. We shall also continue to provide the necessary training to ensure that employees are able to operate according to the Public Finance Management framework.
- Efforts of government and Regulators to promote competition
Effective competition in the Financial Services Sector is a goal that the Government and regulators must continue to strive to achieve. In a fully competitive landscape, benefits such as greater innovation, efficient service delivery, affordable prices, and the ability for customers to easily switch between Financial Services Providers (FSPs) may be reaped.
The Cabinet of Ministers has recently approved the plan for the modernisation of the National Payments System, as well as the Fintech Strategy, and with these initiatives being undertaken, the importance of having a market that is fully competitive has risen to prominence. Moreover, the Financial Consumer Protection Bill, a piece of legislation that will give the Central Bank and Financial Services Authority more power to protect the interests of financial consumers, will soon be presented to the National Assembly.
It is expected that this will be complemented by work being done out to enhance competition such as reducing or eliminating costs for switching providers, eliminating abusive practices aimed at keeping customers tied to one particular service provider, and educating the public on their rights.
- The importance of affordable financing to support economic recovery
Mr. Speaker, as is the case in several jurisdictions, CBS is cognisant of the importance of affordable finance and has since 2020 put in place two credit relief schemes to provide financing support to businesses impacted by the COVID-19 pandemic. Hence, through participating financial institutions, impacted businesses have access to credit at a rate of 1.50 per cent in the case of Micro, small and medium enterprises (MSMEs) and an interest rate of 4.50 per cent for larger businesses in order to sustain their operations and alleviate their economic distress. To provide further support to the economy, the Central Bank has reduced its policy rate by 3.0 per cent since the second quarter of 2020.
In addition, the Board of CBS also approved a structural shift in the interest rate corridor in June 2021, which is expected to transmit through a notable reduction in interest rates on loans provided by financial institutions. Through the Governor, the Central Bank has provided such forward guidance to the market as well as directly to each financial institution in bilateral meetings held early October 2021. Based on indicative interest rates submitted to CBS, interest rates on loans to businesses and for the financing of private dwelling houses have been reduced.
According to the information on the interest rate that the commercial banks and Seychelles Credit Union (SCU) have submitted to Central Bank, the interest rates on housing loans have gone down by an average of 0.84 per cent, from 7.55 per cent at the end of September to 6.71 per cent currently. With regards to secure business loans, an average reduction of 0.72 per cent in interest rates. At the end of September, the average rate on this type of loan was 16.57 per cent, and currently, it is 15.29 per cent.
Mr. Speaker, I want to stress, the reductions that I have just mentioned are just indicative, which means that the interest rate for each commercial bank and SCU that charge their customers could be different.
The lower interest rate environment is expected to provide an important boost to private sector activity and therefore support economic recovery. Mr. Speaker, the banks need to continue putting more efforts in reducing interest rate and improving access to credit for businesses. Ministry of Finance and Central Bank are working on new measures to ensure that there are more competition in the financial sector. It is too expensive and too difficult for clients to transfer their activities among different banks. One of the proposed measures that will be announced by the Finance Ministry and the Central Bank at the end of this exercise is to target the costs associated with the registration and transfer of securities. There are several other measures that will be announced by the Finance Ministry and the Central Bank by mid-2022.
- Economic Transformation
Mr. Speaker, as announced in the 2021 budget, the following is our economic transformation strategy: “An Inclusive and Sustainable Economic Strategy to Deliver Transformational Change”.
This strategy has to be implemented with more commitment and consultation from the private sector, increasing yields in the tourism sector, building an economy that can better withstand economic shocks, increasing efficiency in the public service, promoting sustainable exploitation of our maritime resources and integrating technology in our general approach, to name a few.
Overall, this strategy covers five sectors:
13.1. The Tourism Sector: A more resilient sector which is better integrated in the economy
Mr. Speaker, the tourism sector remains the highest contributor to the economy in terms of revenue. The revenue from this sector by the end of October 2021 is estimated at US$ 228 million compared to the period between January and October in 2020, when it brought only US $189 million. Mr. Speaker, the revenue estimated for the end of October 2021 has already surpassed the total revenue collected for 2020, which was a total of US $221 million. Nevertheless, we are also very much aware of the impact of the Covid-19 pandemic on this sector. Thus, our strategy for this sector is to ensure that it is a more resilient Sector which is better integrated in the economy, and we must work alongside this sector to:
- Increase tourism revenue by putting more emphasis on expenditure choices in the economy;
- Build a more resilient sector that is more integrated into the economy by improving the products we have on offer, promoting policy diversification and to better inculcate our Creole identity in what we offer.
13.2. The Agricultural Sector: Improved Food Security and Economically Sustainable Import Substitution, and the Creation of Avenues to Encourage more Consumption of Local Products in our Economy
Mr. Speaker, the strategy in the Agricultural Sector is “The Transformation in the food production system to build a more competitive and productive system”. This strategy means that we have to plan much further ahead than 5 years, so that we all benefit from the social and economic changes that it will bring. But it is necessary that we make sacrifices today.
In order to realize this strategy, we must raise the production level of poultry and pork to above 80per cent of the market share; we must increase the production of fruit and vegetables that can be produced locally to above 90 per cent. We have to increase the capacity of our farmers to deal with the effect of climate change and reduce diseases associated with food production.
With regards to poultry production, the Agriculture Department has seen a continued increase since 2013, from 216 MT (Metric Ton) to almost 1000 MT in 2020 and the first 6 months of 2021. This shows that in spite of the Covid-19 pandemic, production can clearly exceed this level. The department is confident that with measures such as access to financing and the removal of restrictions, we will be able to exceed the record of 1,560 MT that was registered in 2006.
Egg production has also continued to increase reaching almost 39 million eggs towards the end of 2020, which represents 100 per cent of local production. As for pork production, by the end of 2020, the Agriculture Department saw a local production of 587 MT. This means that we have reached 41 per cent local production.
We have to reinforce the supply and value chain that we can be more productive and competitive. As I have stated before, climate change is a priority. We thus have to invest more in research to protect our local genetic resources, invest in the necessary infrastructure to reduce the risk of inundation, increase irrigation capacities, and intensify investment in cultivation under shading. We also need to increase the capacity of our country to address the challenges of pests and diseases. With regards to investment, we will have to be more proactive in mobilizing financial resources for those who are engaged in food production. We equally need to improve our training programmes to nurture more talents in the agricultural sector.
Mr. Speaker, we are making an allocation of R123.4 million in the 2022 budget for this sector. This allocation includes R13.6 million for the construction of new abattoirs on Mahe and on Praslin.
13.3. The Fisheries and Blue Economy Sector: The Promotion of Value Addition and the Modernization of Infrastructure
Mr. Speaker, our strategy for the Fisheries and Blue Economy sector is to “Promote Added Value and the Modernization of Infra-strucure”. The Fisheries sector is a key sector with much potential. Our fish consumption per capita is one of the highest in the world, and this shows that fish plays a very important role in the nutrition of our population. The principal source of our consumption is artisanal fishermen. To show their importance, we are joining with the United Nations General Assembly to celebrate 2022 as the international year of artisanal fishing and aquaculture. It will be a very important year for the fisheries sector since the contributions of artisanal fishermen and people working in aquaculture will be recognized.
Mr. Speaker, in the 2022 budget, an allocation of R108.1 million has been made for the fisheries and blue economy sector.
The emphasis in the fisheries industry will be on value addtion. The implementation of a major infrastructure project on zone 14 for the industrial fishing sector has reached an advanced stage. We launched an appeal to potential investors to develop facilities for value added for the fishing industry on a 70,000m² land parcel. We have allocated parcels to the investors and we are working with them to finalize their lease agreements.
The development on Ile du Port is ongoing. SFA intends to continue putting more resources into assisting fish processing projects in the fisheries sector. A budget will be provided for infrastructure development including roads, drainage, and utilities. SFA has provided a budget of R27.5 million which will be released in stages, through a consultancy management process.
Still on Ile du Port, on the other side where net repairs are done, SFA will resurface the area, and put an appropriate drainage system. SFA intends to build the necessary facilities for the benefit of the net repair operators, which will include a shed for net recycling. This is a project that has just started and a budget of R4.5 million has been an allocated.
Our strategy in the blue economy sector is one that encourages the sustainable development of our ocean and develops new sectors in the economy. Government has invested a lot in the development of aquaculture, and the time has come to commercialize this sector. We have seen the launch of this sector this year, and we take this opportunity to appeal to local and international investers to contribute to this sector and invest in it. This will eventually contribute towards food security and create wealth for our people.
The second phase of the project for the construction of an aquaculture facility will start next year. In 2022, SFA will begin the construction of offices and laboratories at Providence, where the aquaculture officers will be situated. This project will cost about R1 million.
All infrastructure development projects that benefit the fisheries sector directly will be financed under the Agreement for Sustainable Fishing Partnership between Seychelles and the European Union.
13.4. The Digital Economy Sector
Mr. Speaker, the digital economy is very important in the agenda for economic transformation. Earlier this year, Cabinet approved the recommendations for the implementation of an action plan for this sector and appointed committee to work on the action plan. This action plan is to “Improve the integration of technology in the country and in the financial sector”. This will be done through five pillars:
i. Improving the technological infra-structure in the country
ii. Improving our digital skills to ensure the inclusion of the population and equal access to the opportunities offered by technology
iii. Promoting and implementing more digital platforms in the public service
iv. Improving financial inclusion through the digitalization of payment systems
v. Developing structures that encourage a culture of entrepreneurship to help diversify our economy.
The Department of Information and Communication Technology (DICT) is working on two initiatives with the principal aim of reducing the cost of internet services in the country. The first initiative is a collaboration with the Central Bank to conduct a study on the affordability of broadband internet services and the factors that determine its costs. The other initiative is a collaboration with the Fair Trading Commission (FTC) to engage with the companies offering Submarine Cable Systems services, to adopt a more uniform approach in the prices offered to clients and possibilities for reducing the cost of international bandwidths, even if they are not stakeholders of these companies.
Mr. Speaker, the bill on Cybercrime is before the National Assembly. Government is also working on a bill for Data Protection which will be discussed in 2022. These laws are important, especially with regards to developments in the financial sector.
Government will also continue to establish the necessary structures to ensure that there is a competitive environment in the telecommunication sector. The new bill that will be presented to the National Assembly early in 2022 will address the ways in which anti-competition is effected.
Government will also do the necessary to establish the legal provisions to enable the number portability, to facilitate consumers who wish to switch operators. At the moment, this is not possible.
Mr. Speaker, DICT has done a lot of work towards the implementation of the ‘electronic-ID’ system, which we expect will be operational in the first quarter of 2022. This project will help in the facilitation of other digital initiatives.
Government is also committed to the implementation of its projects to make its services more accessible online. For example, the following services will be accessible online in 2022:
i. Registration of businesses and associations
ii. License applications or renewals
iii. Tax declaration and submission of returns
The Collateral Register project was completed in 2021 and the public are already making use of it online.
Government has also made provisions in the 2022 budget for the completion of certain systems and the implementation of other systems as follows:
i. Health Information System (HIS) which has cost Government a total of R113.2 million, will become operational in 2022
ii. The project for new integrated information system for the management of public funds (Integrated Financial Management Information System) will begin in 2022 and we expect that this system will become operational in 2024. To start the project, an allocation of R 9 million has been allocated in the budget for 2022.
iii. A modern tax management system. An allocation of Euro 1.8 million has been budgeted in 2022.
13.5. The Financial Sector
Mr. Speaker, the Financial Sector is another area in which we are expecting this transformation to take place, bringing more growth in the medium term. Our principal objectives for the development of the financial sector are as follows:
i. To establish the necessary laws so that we are in conformity with international standards
This year, the National Assembly has approved 13 laws to ensure that Seychelles is in conformity with international standards, and we have seen the results of this. In October this year, Seychelles was removed from the European Union’s Annex I list, of non-cooperative jurisdictions for tax purposes, and we have been put on Annex II. Seychelles will be removed from Annex II when the Organisation for Economic Cooperation and Development (OECD) visits us in 2022 to assess the effectiveness of the framework for exchange of information on taxes.
Mr. Speaker, in 2021, we have improved our laws to align them with best practices in the anti-money laundering framework, and the fight against financing terrorism (AML/CFT). This is in accordance with the standards of the Financial Action Task Force (FATF). We have since improved on 9 ratings in the 20 recommendations that have deficiencies. We expect to push forward more laws towards the end of 2021 and in 2022 to ensure that Seychelles is in conformity wi