Despite significant tax reforms in recent years, Seychelles’ tax system needs to be fairer and more sustainable, in particular through a rebalancing of its business tax, according to a new OECD report.

OECD Tax Policy Reviews: Seychelles 2020 provides an in-depth and comparative assessment of Seychelles’ tax system, and identifies a number of recommendations for tax reform. This publication, which is part of the OECD Tax Policy Reviews series, focused primarily on the examination of the business tax.

The report acknowledges the reforms introduced by Seychelles in recent years, in particular to remove provisions that were not aligned with international standards to tackle tax evasion and avoidance. It highlights the need for progress in other areas as the tax burden is heavily concentrated on a small number of companies, with 30 companies accounting for almost 80% of total business tax payments. On the other hand, some of the largest sectors in the economy contribute only marginally to business tax revenues. The tourism sector, for instance, is responsible for around a third of value added in the country but accounts for only 8% of total business tax revenues.

This imbalance results from the generous tax treatment provided to some specific sectors, but also from international tax planning by businesses with headquarters outside of Seychelles and continuing tax evasion by some small operators that do not always report their activities or income accurately.

To rebalance the business tax system and create a more level playing field, the OECD recommends re-aligning business tax rates across sectors. Using unique business taxpayer microdata, the report simulates the impact of different tax reform scenarios on tax revenues and businesses’ effective tax rates and outlines the different reform options available to Seychelles.

The report also recommends broadening the business tax base by better targeting tax incentives and continuing to fight against aggressive corporate tax avoidance by introducing measures in line with the BEPS project. These measures will contribute to reducing differences in tax levels across sectors and to financing an alignment and overall decrease in business tax rates.

“These findings and recommendations have already been very useful in our budget discussions, and will help guide Seychelles’ future tax reform efforts. The OECD’s work and consultations with local stakeholders here in Seychelles have also led to fruitful discussions, which we hope to continue building upon”, said Maurice Loustau-Lalanne, Minister of Finance, Trade, Investment and Economic Planning of Seychelles.

The report also calls for enhancing the design and functioning of other taxes, including broadening the value-added tax base, modernising the personal income tax and strengthening environmentally related taxation, through the introduction of a low-rate, broad-base carbon tax. Administrative improvements will also be key to collecting adequate revenues, while easing the burden on taxpayers.

“Ultimately, these reforms should help Seychelles address some of its most pressing economic, environmental and social challenges, including climate change, economic diversification and inequality”, said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. “The aim is to support the development of a modern, fair and transparent tax system, in line with international standards”.

(Source: OECD Tax)

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