Budget Address delivered by Naadir Hassan, Minister for Finance, Economic Planning and Trade on Tuesday February 16, 2021 |17 February 2021
Naadir Hassan, Minister for Finance, Economic Planning and Trade
‘To transform this country, there must also be a change of mindset’
Mr Speaker,
Honourable Leader of the Opposition,
Honourable Leader of Government Business,
Honourable Members,
My fellow brothers and sisters, people of Seychelles.
Good morning.
- Introduction
Mr Speaker, today I am delivering the first budget address under the new administration. In fact, this is also my first budget speech as Minister for Finance, Economic Planning and Trade.
It is important to note that this new Government has taken over this country during one of the most difficult moments of its history. However, I am sure that we are determined to take our country through this difficult period and come out victorious. We are determined to not merely survive, but to also position ourselves in the best possible way, to allow us to once again, prosper.
It is with this in view that the 2021 Budget will present the Government’s first plans for this year, and for the coming years. It will, in the first place, provide details of the measures it has taken, and will take, to ensure that our financial situation is stabilized and to ensure our debt sustainability. These measures will also help towards the better management of our country’s resources through good governance.
Secondly, this budget will bring to the fore, the new policies that this new government has put in place in order to boost our economy, which has been brought to its knees by the Covid-19 pandemic. Our ambition is to bring about a comprehensive transformation that will create wealth for our people.
Mr Speaker, in his State-of-the-nation Address, the President took a firm and frank approach to make us understand the challenge our country faces due to the pandemic, and more importantly, to convince us that we have to change the way our country has been governed before, for our own good.
We must rethink our dependence on the tourism sector. Admittedly, we do have an added advantage in this sector due to our abundant natural beauty, but the tourism industry in this country is presently on its knees. We thus have to redouble our efforts to recover by restructuring and changing the way we do things.
Seychelles will thus have to go through a series of macro-economic transformation, both structurally and in its governance, that will allow us to recreate wealth, ensure economic development and promote and instil in our people, the importance of taking responsibility for ourselves.
It is important to understand that irrespective of the Covid-19 pandemic, this country could not have continued on the same path. It is thus necessary to inspire our people, to raise their morale and revive their values with regards to productivity, innovation and responsibility.
Mr Speaker, this Covid-19 pandemic is a wake-up call for all of us.
During 2021, the Ministry of Health will continue to lead the difficult battle against Covid-19. It will intensify its efforts to administer the Covid-19 vaccine to all those who come forward, so that our country may reach the ‘collective immunity’ level that we need. This is the key to resuming a more or less normal life during this year.
More importantly, we must bear in mind that in this difficult moment when our resilience as a country and a nation is being tested, this is the moment when we should be open to the discovery of new opportunities.
Mr Speaker, there is a saying that ‘Every cloud has a silver lining’. We should be flexible enough to come out of our comfort zone, and be receptive to new opportunities.
In difficult times, we may discover new skills that we never knew we had, because we were in our comfort zones. This is the time to reinvent ourselves and our country.
This is the vision of our new Government. To build a country and a nation that is resilient in all challenges in its way, that is able to rise again after a fall, that its people has initiative and take all opportunities put at their disposition.
A country with a diverse economy, and where we have not put all our eggs in the same basket.
Mr Speaker, this Government wants a country that is able to withstand the impact, when the wider world sneezes, so that we are able to face any eventuality and do what is more important for our survival.
- Review of global economic performance
According to the latest publications by global economic institutions such as the World Bank and OECD, global growth for the year 2020 is expected to shrink by 4 to 5%.
World Economic Outlook, published in October 2020, described the global economy as one which was still trying to raise itself from the depths to which it had fallen, due to major restrictions which had been imposed from April 2020.
The International Monetary Fund (IMF) has predicted a global contraction of 3.5% for 2020. This is 0.9% higher than had been estimated, in view that there had been increased activity in the global economy, especially during the second part of 2020. However, China is the only country that has seen a positive increase of 2.3% in 2020.
The IMF economic evaluation has predicted an improvement in global growth in 2021, compared to 2020. In 2021, the IMF expects that the global economy will increase by 5.5%, and by 4.2% in 2022. In spite of the uncertainties in this respect, this expectation is attributed to the ongoing vaccination campaigns, as well as the various macro-fiscal policies that every country will have to implement. This means that economic activity will be able to resume towards the middle of the year.
It is also important to note though, that in spite of the various vaccines being administered, and which gives hope to the world that we will be able to turn the present situation around, the new strands of the virus and consequent lockdowns being imposed in a number of countries remains a cause for concern with regard to growth predictions.
- Overview of Seychelles’ economic and fiscal performance in 2020
Mr Speaker, the effects of the Covid-19 pandemic on the economy of Seychelles in 2020 has been one of the worst we have ever experienced. I repeat, it is one of the worst we have ever experienced.
With the 2020 Budget Amendment, we were expecting that our economy would contract by 10.8%. However, we have seen a further deterioration which has brought us to 13.5%.
This is due to a continued decrease in the tourism sector, in view of the fact that the number of arrivals after the re-opening of our frontier in August 2020 did not increase as per our expectations.
The latest figures show that tourist arrivals decreased by 70.1% compared to 2019, with 384,204 visitors in 2019 plummeting to just 114,858 visitors in 2020.
We have estimated that the accommodation, food and also the administrative sectors have also contracted by 65%.
We have estimated that the transportation and storage sectors, that are also linked to the tourism sector through plane and boat arrivals, will contract by 30%.
With such a performance in our tourism sector, its revenue collection has decreased by approximately 322 million American dollars. This represents a 61.3% decrease compared to the provisional estimate for the year 2019.
The same performance has been observed in VAT collection in the domestics tourism sector with a reduction of 48.2% at the end of 2020, which is equivalent to SCR416 million.
There has also been a decrease in construction activities that has resulted in a contraction of 1% in that sector for the year 2020.
In the utilities sector (water and electricity), we have observed a similar reduction of 1% in production, during 2020.
There has been a reduction of 15% in growth in the retail and distribution sectors, and in the arts, recreation and leisure sectors, economic growth has decreased by 35%.
On the other hand, in spite of the adverse effects in these sectors, we have seen a positive growth in other sectors.
In the food production sector, we have observed an increased growth of 17.55% while in the information and telecommunications sector, there was an increase of 13.95%.
The financial and insurance sectors have seen an increase of 9.4%.
The fisheries sector has also recorded an increased growth of 2.20%. However, there has been a minimal contraction of 0.15% in the agricultural sector.
Mr Speaker, with regard to our fiscal performance, it has been even worse than our economic situation before we embarked on the macro-economic reforms of 2008.
For the year 2020, we have experienced a preliminary primary deficit of 15%, or SCR3.231 billion, and an overall deficit of 18%, which represents SCR3.871 billion.
This means that the revenue that the Government needed to finance its planned expenditures, was not enough. As a result, Government has had to make up the difference through loans to the value of SCR 3.871 billion.
Mr Speaker, this situation is not sustainable. The government will thus have to review the way it manages its expenses in the years to come, to ensure that we become more resilient with regard to the challenges we are presently experiencing.
The level of spending we have experienced in 2020 in spite of the fact that our economy had decreased in production means that we have continued to spend in an artificial way. This is one of the main reasons why our currency has depreciated and the cost of living has increased.
An example of this is the introduction of the FA4JR scheme, which has not been implemented on the basis of merit. This has contributed to the country’s inability to adjust to its new economic situation.
- 2021 Budget
Mr Speaker, for the budget 2020, a sum of SCR9.292 billion was approved by the National Assembly in 2019 and with the 2020 Budget Amendment, Government proposed a budget of SCR10.447 billion. This was an increase of SCR1.2 billion.
A sum of SCR1.139 billion was also approved as supplementary budget estimate in December 2020 for the fiscal year 2020, which make the total approved budget for the year 2020 to be SCR11.586 billion.
For the 2021 fiscal year, we are only proposing an expenditure of SCR11,013,648,296.00. We are predicting a revenue collection of SCR8.260 billion, inclusive of donations.
This means that we shall still have a primary fiscal deficit of SCR2.642 billion or an equivalent of 11.8% our GDP, and an overall deficit of 15.3% of our GDP. This means that the Government will have to borrow SCR3.417 billion to meet our expenditures.
Mr Speaker, Government expenditure remains very high for the year 2021, when we consider the critical situation we are in. The main reason behind our increased budget in 2021 is the depreciation of our Rupee by more than 50%, which has a direct impact on our expenditure, especially in foreign exchange, such as expenses for the importation of medicine, medical equipment, capital projects and other goods and services that Government procures.
Secondly, there are also some infrastructural projects that we anticipate will be financed by loans and donations. SCR1.185 billion of the funds for these projects will come from donations, and another SCR316.5 million will be financed by various loans.
Our plan for the medium term is to reduce this deficit to 8% in 2022 and 2% in 2023. Such a reduction will put us back on a sustainable path for the next 5 years.
To reduce this deficit, we have to continually reduce Government’s recurrent expenditure, and ensure that we function more effectively by reducing wastage and duplication. However, for the year 2021, Government had reduced expenditure by cancelling the FA4JR scheme as from April of this year, which saves SCR1.082 billion in our budget, by reducing expenditure on welfare by SCR47.580 million and by reducing the URS expenditure by SCR24.689 million, compared to the 2020 budget.
This exercise of reducing expenditure will continue and will be reflected in the mid-year review, and in successive budgets for the coming years. It is good to note that the plan to reduce the fiscal deficit will also depend on an improvement in the global Covid-19 situation, and the speed at which the different economies recover.
4.1. National Debt
Mr Speaker, the necessity for reducing our fiscal deficit becomes more important, in view of the fact that our Government debt is no longer sustainable. We may recall that we had made a commitment to attain the target of 50% debt-to-GDP by 2021.
Unfortunately, when I accepted the call from President Ramkalawan to head the Ministry of Finance, by the end of 2020, debt-to-GDP was 99.4%. The reduction in our gross domestic production and the various additional loans and guarantees taken by the Government, due to our country’s reduced ability to generate revenue, has contributed to the deterioration in our debt-to-GDP.
At the end of 2020, our total debt was SCR18.085 billion. SCR9.064 billion of that is external debt, which is equivalent to 50.1% our total debt, and SCR9.021 billion is local debt.
External debt has increased by SCR3.507 billion compared to the end of 2019, and local debt has also increased by SCR1.984 billion compared to the end of 2019.
94.6% of the debt owed by the government of Seychelles is direct Government debt, and the rest are loans guaranteed by the Government.
We expect that at the end of 2021, our debt-to-GDP will arrive at 108.4%, and 87.2% by 2025, if we continue on the same path.
The discussion on our debt sustainability is being done in the context of our negotiations with IMF for a programme of reform.
4.2. National Reserve and the Monetary Sector
On a gross basis, the official reserve, which at the end of 2019 was US$580 million has gone down to US$559 million at the end of 2020, and was at US$535 million by February 12, 2021.
This reduction is due to the sum that has been used to ensure that our country honours its international obligations with regard to debts. It is also due to market demands, principally to assist Seypec (Seychelles Petroleum Company) and STC (Seychelles Trading Company), as well as demands from the commercial banks.
With regard to local deposits of foreign exchange at our domestic banks, this has seen a decrease, from US$565 million in December 2019 to US$546 million in December 2020.
In terms of exchange rate movements, the domestic currency depreciated against all of its main trading partners. The fall in the value of the Seychelles rupee was from an average of SCR14.03 in 2019 to SCR17.62 in 2020 or by SCR3.59 (26 per cent). Thus far in January 2021, the rupee has been trading at an average of above SCR21.50 relative to the US dollar.
Mr Speaker, our reduced economic activity and the degree of uncertainty that currently exists, means that the demand and supply for credit has been severely affected. The preliminary results show that in 2020, there has been only a 5.1% expansion of loans in Rupees, that were given to the private sector, compared to a 17.2% expansion in 2019.
As for the lending rate, we have observed a reduction in 2020, whereby the average lending has gone down, from 12.36% in 2019 to 10.94% in 2020. The lending rate on savings has gone from 2.88% to 2.19, in that same period.
4.3. Economic context for 2021
Mr Speaker, in 2021, we are expecting a moderate improvement in our economy.
We are projecting a growth in our GDP by 2.08%. This means that we expect our GDP to be at SCR22.361 billion, compared to SCR20,626 billion in 2020.
In the tourism sector, which is the main pillar of our economy, we are projecting a slight improvement of 0.95% as from the second quarter of 2021, in view of the various vaccination programmes being implemented, especially in those countries where the bulk of our tourists come from.
The highest growth rate we are expecting is in the information and telecommunication sector, which has been predicted to increase by 5.23%, and in the food production sector, by 4.95%.
This is due to the ongoing demand within the population. We are also expecting an increase in demand as visitor arrivals begin to resume.
In the agricultural and fisheries sector, we expect to see an improvement of 2.32% and 1% respectively, in 2021, as our economy gradually recuperates, movement restrictions are lifted, including restrictions in our key tourism markets.
We expect that with this, our economy will gradually take off in the medium term, with a 3.5% growth for the years 2022 and 2023.
In general, we are projecting an inflation rate of 3.78% in view of the high demand for foreign exchange – thus, even if the inflation rate is stabilizing, the fact remains that we depend heavily on importations, and this influences the price of commodities.
4.4. Tax collection
Mr Speaker, we expect to collect SCR6.17 billion in 2021 in taxes, which is the equivalent of 27.6% of our GDP. The projection for the 4 largest areas of tax revenue is as follows:
We expect to collect SCR1.1 billion in business tax in 2021, in view of losses in 2020 which will be carried over to 2021.
This represents a reduction of SCR81 million or 7.7%, compared to 2020. Even if we expect our economy to improve, business performance in 2021 might take a while to relaunch. It is only with the arrival of tourists that we will see a greater improvement in this tax area, in the medium term.
We are also expecting a reduction in income tax revenue in view that the FA4JR will be terminated at the end of March 2021, and the adjustments that private businesses are expected to make, and in view of the fact that there will be no salary increase or new scheme implementation.
As for VAT, we expect to collect SCR2.14 billion, which represents 35% of our tax revenue. This represents an increase of 2% or SCR48.9 million compared to 2020. This projection is a moderate estimate since we are expecting a moderate improvement of our economy in 2021.
In the mid-term, VAT will be expanded in line with the expansion of growth in our GDP.
We are projecting a SCR1.28 billion in Excise tax revenue for the year 2021. Fuel importation is the greatest contributor in this tax area, since changes in the price of this commodity does not generally have an effect on its demand.
This represents an increase of SCR21.6 million, compared to 2020, in view of expectations that economic activities will resume towards the middle of the year.
- The 2021 Budget Context
So, Mr Speaker, our priority for the 2021 budget, is:
(a) Firstly, to make the government budget become more sustainable by
Reducing fiscal deficits and make a gradual transition towards a budget that makes a surplus, which will help bring our Government debt at a sustainable level.
(i) Reduce Government expenditure.
(ii) Remove abuse and corruption in Government
(iii)Remove dependence on social assistance by those individuals who are able to work
(b) Secondly, putting in place policies that will relaunch our economy in:
(i) The Tourism Sector
(i) The Fisheries Sector
(ii) The Agricultural Sector
(iii)The Financial Sector
(iv) The Digital Economy Sector
5.1.1. Remove Abuse and Corruption
Mr Speaker, it is this Government’s priority to remove all abuse and corruption in the public finance of this country, and to put in place merit-based programmes that will create wealth and prevent poverty.
For many years, Government has not practiced good governance in its administration. It has condoned the dishonest management of public funds and has not ensured accountability in the way that the budget of independent agencies has been managed.
We need to ensure that funds are used to assist only those who need it or to deliver programmes and projects that are much needed by the population.
5.1.2. Gradually reduce the fiscal deficit we have experienced in 2020, during the next 3 years.
Mr Speaker, our budget deficit must be reduced gradually, in an organized manner, so that as we introduce macro-economic reforms that reduces Government expenditure, put a stop to wastage and corrupt practices, this deficit will become more sustainable.
5.1.3. Remove dependence on social assistance for individuals who are able to work
Government will put in place the necessary structures to protect those who are more vulnerable, and introduce employment management strategies to reduce the number of foreigners that are employed in this country. This will especially target positions that can definitely be filled by Seychellois.
For too long, there has been abuse of social assistance, to the point that those who really need assistance are not receiving it, whereas those who are able-bodied and can work, are benefitting.
Mr Speaker, come what may, this kind of abuse has to stop.
Everybody that can work will have to work. There will be no exception for anybody. We should all be working to look after our family and not depend on the state to do it for us.
As the President said in his State-of-the-nation Address in January, we should be proud to work.
The value of hard work instilled in our forebears must be nurtured in today’s generation. At the end of the day, we must all contribute to the development of our country.
5.2. Government Expenditure
5.3.1. Salaries
Mr Speaker, for the year 2021, a budget of SCR2.96 billion is being proposed for salaries. This compares to SCR2.67 that has been spent in 2020. This means that we have a ratio of 13.24% salaries to our GDP.
Our expenses on salaries keep on rising, which reveals that Government has expanded again, contrary to the aims of the 2008 economic reforms, which precisely targeted a reduction in Government size.
Thus, in the face of budgetary challenges, Government will only finance recruitment in key positions in certain ministries and agencies, in 2021.
There will also be no salary increase for public service employees and no increase in long service allowance. In the same way, Government will not finance any new scheme of service for this year, bearing in mind our economic challenges.
A first phase of restructuring measures have been announced by President Ramkalawan.
With a budget review mid-year, we will have been able to consolidate these series of restructuring that are being worked on, to ensure that we have in place, a public administration that is more efficient, by reducing the number of duplications and eliminating unnecessary positions or those who are not performing.
For the moment, most of the budgets being proposed are in their totality, until the laws that govern these entities in question have been completed.
5.3.2. Goods and Services
Mr Speaker, the budget for Goods and Services in government is also a considerable one, with a provision of SCR3.085 billion.
One of my priorities in 2021 is to review our Public Procurement Act. In view of the number of complaints there are with regard to procurement, Government will revise our procurement methods, with the aim of simplifying the procedures. At the same time, all ministries and departments will need to function better in this respect, by ensuring that they play a key role for a more transparent and also simplified procurement procedure.
Secondly, there will also be measures that will be taken against contractors who continually fail to deliver Government projects on time and of an acceptable level. The bids of those contractors for Government projects will no longer be accepted, if their performance is not at the required level.
Capital Projects will also have to be better managed. There has been too much abuse whereby contractors tender very low prices just so they get the contract, and then what happens? A series of additional payments are presented for so-called, ‘cost over-run’.
Government will not tolerate any of its officials who make deals with contractors for their gain. This is a very clear warning that I am giving today.
During these coming weeks, Government will begin an exercise to review its expenditure in certain budget lines.
We consider that Government spends far too much on security, rent for accommodation or offices and cleaning services, which amounts to a total of SCR808.9 million per annum.
We are putting a proposal to all proprietors who rent properties to Government ministries, departments and agencies, to offer a reduction of up to 25% on rent, as of February 1, 2021.
Mr Speaker, proprietors have not passed on to Government any of the benefits of the tax reduction on accommodation which was passed in January 2020.
Secondly, in view of the economic situation of the country, Government has put in place a lot of schemes to assist businesses and individuals. In spite of that, we have not seen any of the businesses who have benefitted from these schemes reduce their prices so that their tenants who have suffered from salary reduction and loss of revenue can also benefit.
I am thus appealing to all of us, to start doing our bit during this difficult period, and not to expect that only Government should give assistance in these circumstances, while we continue to collect revenues as usual.
We are also reviewing the way that we manage security services. Government is steering more towards surveillance equipment so that we can cut down on the exorbitant prices that we have to pay for this service.
In the same vein, Government is spending SCR301.1 million per year to outsource cleaning services for certain offices, roads, beaches and rivers.
The tenders for cleaning has been too politicized in the past. Thus, there will be a review of this process to ensure that cleaning allocations are made in such a way that we get value for money, instead of small separate contracts that end up becoming too expensive and unsustainable.
Mr Speaker, Government has also observed a lot of corrupt practices in the procurement of goods and services in its ministries.
It is not acceptable for ministries to do business with their own staff, or for staff to get private jobs for which they use Government equipment.
The principle of conflict of interest must become a priority for all chief executives in government. It is not acceptable that such highly placed officials should allow such practices to go on within their organizations. It suggests that they are probably also implicated in these practices.
Mr Speaker, the Department of Foreign Affairs, has for a while now, begun procedures for restructuring, with the aim of reducing its expenditure, especially expenditure in foreign exchange, without compromising its presence and engagements with our international partners.
This restructure includes the closure of three embassies abroad, notably, Havana, Colombo and our representation in Geneva.
This means that at present, Seychelles diplomatic service has only nine embassies abroad. In collaboration with STB, certain embassies are also being used as the tourism office for Seychelles. This exercise is still ongoing.
On top of this, Government has also decided the remaining embassies will be managed by only one diplomat instead of two as has been the practice in the past. We will keep either a ‘chargé d’affaires’ or an ambassador in these embassies. This will reduce our costs compared to when we have two Seychellois working in these embassies.
In order to keep Seychellois diplomacy on a professional level and up to standards, we shall support our embassies through our honorary consuls who may be found in more than 100 countries across the world.
We have completed a review of our list of consuls, and we have replaced those who were not performing. New appointments have been made where necessary.
Government has asked all the consuls to renew their engagement in this endeavour. It is important to note that an honorary consul works for the Republic of Seychelles for free.
The Department of Foreign Affairs is also investing a lot more in virtual meetings, so that Seychelles remains connected to the rest of the world, without needing to travel. This has also reduced costs with no adverse effects on our principal functions.
With these restructures, the budget of the Department of Foreign Affairs has been reduced, going from SCR108.7 million in 2020, to SCR93.464 million in 2021.
This is a reduction of SCR15.236 million.
5.3.3. Capital Investment Programme
Mr Speaker, the Government’s programme for capital investments for the years 2021 to 2023, comes to a total of SCR4.7 billion. 40% of this investment has been budgeted for implementation in 2021, which comes to a sum of SCR1.9 billion. The total budget allocation for capital projects for 2021 represents an increase of 58% compared to the capital investment budget for 2020.
This increase is due to a number of large capital projects, especially in the health and education sectors, that are expected to be financed during this year, through financial donations and external debts.
The total budget for capital expenditure that is being financed by donations and external debts have increased on average by more than 100%, compared to the 2020 budget. The budget allocation that is receiving domestic financing has decreased by 6% compared to the 2020 budget. This decrease is due to the fact that Government is financing only projects that are already in the implementation stage.
Some major projects being financed in the 2021 budget, as per their different funding sources are as follows:
Projects being financed through domestic budget are:
- Continuation of the ‘24/24’ housing construction project that fall within the programme, with an allocation of SCR120 million
- Continuation of the construction project of a new block at Belonie Secondary School with an allocation of SCR10 million
- Continuation of the construction of the Anse Royale kindergarten with an allocation of SCR9.7 million
- Continuation of the construction project for a new police station on La Digue with an allocation of SCR6.7 million
- Continuation of the third phase of the Pasquere road on Praslin with an allocation of SCR5 million
- Construction of the new vehicle testing station on Praslin with an allocation of SCR2 million
- A total of SCR21.3 million has been allocated for different projects in the agricultural sector, including a sum of SCR5.4 million to continue the construction project of a research facility at Anse Boileau
- A number of projects that are targeted for the economic infrastructure which includes the second phase of the industrial zone project in zone 20, and the development of Zil Eve, with a total allocation of SCR36.8 million.
Projects being financed through external debts, these include:
- Reconstruction of the La Rosière School with an allocation of SCR38 million
- Construction of a new facility for the Seychelles Institute of Agriculture and Horticulture with an allocation of SCR25.9 million
- Continuation of the Health Information System with an allocation of SCR76.6 million
- Construction of the new jetty for the Coastguards, with an allocation of SCR21.2 million
- Acquisition of new equipment for different primary schools and kindergartens, with an allocation of SCR22.9 million
- A total of SCR83.9 million to finance projects which are already being implemented in the Blue Economy sector.
Projects being financed through external donations:
- Continuation of the construction of the ‘SBC House’ building, with an allocation of SCR36.4 million, financed by the Chinese Government
- Construction of the new Police Headquarters with an allocation of SCR84.9 million, financed by the Indian Government
- Construction of the new La Digue hospital with an allocation of SCR73.7 million, financed by the Government of the UAE
- Construction of a new building for the office of the Attorney General with an allocation of SCR110.2 million, financed by the Indian Government
- Construction of the new Baie Lazare clinic with an allocation of SCR44.2 million
- Construction of a new Isolation Centre with an allocation of SCR39.8 million
- Acquisition of a new patrol boat for the Defence Forces with an allocation of SCR340 million, financed by the Indian Government
- Construction of a new rehabilitation centre for drug addicts, with an allocation of SCR34.5 million financed by the Government of the UAE.
Apart from the allocation of investment capital for its ministries, departments and agencies, Government has also provided for some allocations towards development projects in certain public enterprises.
A total of SCR180.8 million has been budgeted for development grants towards projects in 2021, which comprises SCR78 million for SPTC, SCR62.8 million for PMC and SCR40 million for PUC.
SPTC expects to buy 55 new buses in total, and this will be financed through a loan from the Government of India, for a sum of SCR63.5m. Government will also inject SPTC with an additional sum of SCR14.5m for its capital projects.
SCR62.8 million has been budgeted for PMC, of which, SCR52.8 million will go towards the repayment of PMC’s loans from Nouvobanq and Seychelles Pension Fund for housing projects, and SCR10 million for renovation jobs on the flats which are administered by this agency.
Government is also providing a sum of SCR40 million for capital projects being implemented by PUC.
5.3.4. Benefits and the ASP Programme
Mr Speaker, a sum of SCR1.425 billion is being proposed for benefits and programmes of Agency of Social Protection (ASP).
This is less than the budget of SCR1.658 billion received by the ASP last year.
This reduction is due to the following expenditure:
- Allowance for post-secondary students,
- Apprenticeship Scheme,
- URS,
- Vulnerable home repair, and
- Dedicated fund
which will now be managed by their respective ministries, instead of ASP. This will simplify the procedures and ensure that ASP focuses only on its own schemes.
5.3.5. Subventions of Public Enterprises
A budget allocation of SCR220.8 million is being proposed for the subvention of public enterprises in 2021. A sum of SCR413 million was budgeted for this in 2020.
Out of the allocation, SCR133 million has been proposed for Air Seychelles, of which, SCR103.724 million will assist the payment of salaries for 9 months only.
A sum of SCR50 million is also being proposed for SPTC to assist it with revenue constraints.
Government is also assisting two or three public enterprises with their salary payments for this year, because they are dependent on tourism activities.
These public enterprises are as follows;
- SCR14.8 million for the Seychelles Marine Parks Authority
- SCR15 million for the Postal Services of Seychelles
- SCR7.6 million for The Guy Morel Institute
Mr Speaker, we shall also have to work very closely with other enterprises that have a great possibility of being affected if the situation does not improve, for example, the Seychelles Civil Aviation Authority (SCAA).
5.3.6. Contingency
For 2021, a sum of only SCR50 million is being proposed for the contingency budget. In view of the financial challenges we are facing, Government will not be in position this year to pay the second portion of the compensation payments for La Misère, which means thus, that these payments will have to be postponed to a later date.
- Fiscal measures
6.1. Tax Reform
Mr Speaker, another of our priorities is to modernize the Seychelles Revenue Commission (SRC), with emphasis this year being laid on improving ‘compliance’, and secondly, to move towards e-service.
With the aim of improving the ASYCUDA system, SRC will make certain upgrades in this system to enable it to function better.
The Customs Services will move to online service and reduce paper transactions.
This initiative will allow for declarations associated with imports and exports to be made electronically.
This will reduce the cost and time it takes to discharge merchandise at the ports and airport, and will also reduce exportation costs for our local businesses.
A cargo tracking system will also be introduced to enable the identification of risks associated with specific cargo from their points of origin, which will facilitate the offloading of the merchandise when it arrives in Seychelles.
With regard to other services, we are working towards the improvement of existing online services. We will increase the number of services that can be offered online such as business registrations, the submission of returns and other forms that International Business Companies (IBCs) are obliged to submit.
There will be changes in the way SRC manages tax returns, with the aim of improving tax collection and ensuring that businesses honour their obligations. This will make it easier to ensure compliance.
Government will move to a default assessment system instead of relying on self-assessment only. This will ensure that more taxpayers are covered in the audit system, and thus ensure that all businesses are making their tax payments as per their obligations.
SRC has been receiving information from financial institutions that report to Seychelles, under the ‘Global Forum’s Automatic Exchange of Information’, since 2017.
Unfortunately, we have no system in place that is properly able to manage this information.
SRC is thus evaluating two proposals for installing a new system which will enable it to use this information to audit and identify businesses that make financial deposits abroad, but who do not declare the tax returns on these revenues to the authorities in Seychelles.
6.1.1. Reforms in Business Tax
Mr Speaker, in December 2020, Government organized a series of consultative meetings with the private sector and different business associations to discuss a new regime of business tax.
We have not been able to complete this process this year because of restrictions. We thus plan to complete these discussions, particularly with the fisheries and agricultural sectors, with the aim of installing a new tax system for businesses during this year.
The Government’s policy on taxes is that every business and every individual, whichever sector they hail from, must do their part and make their contribution, depending on their performance.
The principle of taxes is that profit must be taxed, and the tax rate must be equitable and must apply to all sectors and businesses. As such, Government has plans very soon to reduce business taxes and bring about a more reasonable rate.
Applicable tax rates will be:
- 15% on profits of up to SCR1 million,
- followed by 25% on profits above SCR1 million.
Government will maintain the option of ‘presumptive’ tax that is imposed on small and medium entrepreneurs with revenues of less than SCR1 million per annum.
We have also begun working towards establishing appropriate guides and policies, to ensure that we have no revenues that are ‘eroded’ or lost by businesses that engage in ‘international profit shifting’. These are circumstances whereby businesses engage in transactions to move their money to their ‘headquarters’ outside Seychelles, in order to reduce their local tax obligations.
In so saying, Mr Speaker, as from April 1, 2021, Government will abolish the CSR tax. This tax is a punitive one that taxes businesses on its revenue, and thus does not recognize entrepreneurial efforts.
Abolishing the CSR tax will give businesses some relief in this period of uncertainty, and enable them to retain a certain amount of liquidity for operating. However, Mr Speaker, it remains the responsibility of every business to invest in their communities.
It is not because the government is abolishing this tax that charitable donations made by these businesses should stop. It is just that is not the role of Government to force businesses to make donations, nor should these businesses expect something in return.
We have to go back to giving with our hearts!
With regard to tax on VAT, the Revenue Commission will do the necessary to ensure that businesses that collect VAT, but do not remit this tax to Government, should stop, once and for all. Government will provide all the necessary support to SRC to function properly. All those tax payers that are not complying with the VAT act, I am sending a strong message to them to go and regularise their tax affairs because we are intensifying our compliance.
On the subject of tax collection, I have come to a simple conclusion, and I believe that everyone will agree with me. It is this Government’s principle, as I have already said, to find ways of reducing taxes on individuals and enterprises. We can only succeed in this task if everybody takes their responsibility and pay their taxes. I am launching an appeal to everyone to take their responsibility, and I am making it clear to those who keep on hiding their revenues and profits, that we are coming to find you, and the sanctions will be severe.
6.1.2. Reform ‘Excise tax’
Another area where we are envisaging reforms is in our Excise Tax system. This is being revised to allow Customs to better collect this tax.
This will help to improve things in certain sectors, especially alcohol production, where government has identified a number of anomalies.
This reform will include the introduction of a new law that is expected to give more authority to the Customs Division in the administration of control measures, and also to give better guidance to producers on the implementation of the Excise Tax. This is expected to be presented to Cabinet in the first quarter of 2021.