Revenue

The objective:    To ensure the financial position of the Solomon Islands Government is stable and sustainable over the longer term by increasing the capacity of the Ministry of Finance to provide quality advice to government on economic and public financial management.


Improving the Solomon Islands Government's ability to raise and manage revenue is vital to the country's long-term future.

As part of the RAMSI Economic Governance program, RAMSI advisers are working alongside their Solomon Islands Ministry of Finance and Treasury colleagues to help strengthen the country's revenue, improve the country's tax system and build a range of skills and systems that will protect the country's long-term financial stability.

The strategy

RAMSI will work with the Solomon Islands Ministry of Finance and Treasury to:

  • Improve revenue collection through tax reforms that support economic growth.
  • Improve the professional skills of Ministry of Finance and Treasury officers and management.
To learn more about some of the specific targets that have been set for each strategy, download the Partnership Framework document.
 

The challenges

At the height of the tensions period, the serious decline in law and order severely affected the economy, undermining the confidence of investors and donors. As a result, Solomon Islands was receiving very little of the revenue normally collected by governments. With virtually no money coming in, the government was not able to deliver even the most basic of services such as education and health to the general population.

Upon arrival in July 2003, RAMSI worked closely with the Government to stabilise its finances. At the same time the rapid improvement in the country's security environment created by RAMSI's presence in the country led to a steady increase in investor confidence and the full re-engagement of international donors. These improved economic conditions helped lay the foundation for RAMSI's ongoing work supporting improvements in the government's capacity to raise and manage revenue effectively. However, many challenges remain. The country's single largest source of revenue, logging, is coming to an end with few viable alternative sources of growth and revenue identified to replace it.

Additionally, as a very small, open economy, Solomon Islands remains highly vulnerable to global market trends and events. The prices and volumes of goods exported from and imported into Solomon Islands are subject to global market forces resulting in events such as the recent Global Economic Crisis having a major impact on the local economy and subsequently on the Government's balance sheet.

RAMSI's work

RAMSI advisers work alongside their colleagues from both the Solomon Islands Ministry of Finance and Treasury's Inland Revenue Division and Solomon Islands Customs and Excise Division to improve Solomon Islands' revenue collection, critical to bringing back much of the revenue the Government needs to deliver services to Solomon Islanders. Their work covers the following key areas:

1. Tax

RAMSI advisers are helping their Solomon Islands Ministry of Finance and Treasury colleagues build a stronger tax system; one with which every business and income-earning Solomon Islander is compliant. The key targets for this work include:

  • Improvements in taxpayer compliance, demonstrated through reduced taxpayer debt and improved revenue.

  • The development and implementation of a program of revenue-related policy reforms.
  • The development and implementation of a program for annually reviewing taxpayer audit compliance.
  • The redesign of tax accounts, including migration to a new computer system.
  • The ongoing delivery of a public education program, which includes tax information seminars and publications.
  • A review of exemption delegations, guidelines and procedures.
  • A review of penalties across all the taxes.
  • Strengthening of the audit, legal and technical capacity of the Division.

2. Customs

RAMSI advisers are working alongside their colleagues in the Solomon Islands Customs and Excise Division to help ensure businesses and individuals that import and export particular types of cargo pay the appropriate duties and taxes. Key targets for this work include:

  • A review of exemption guidelines and export procedures.
  • A review of existing Customs data management systems.

Case study:
Partners in progress: Building the tax system that helps build a nation

They are the basics of our everyday lives; the core necessities of a country: roads, schools, hospitals and police. Yet seven years ago, with virtually no revenue coming into the country and no taxes being collected, the Solomon Islands Government did not have the funds to sustain any of these basic necessities.

With the arrival of RAMSI in 2003 and the end of the tensions, these core services have been restored in Solomon Islands. And the key source of funds for making this happen is: taxation.

 George Tapo, Solomon Islands Deputy Commissioner of Inland Revenue, together with his RAMSI counterpart, New Zealander Andrew Minto, are two key players in helping to build a stronger tax system in Solomon Islands. The Inland Revenue Division of the Ministry of Finance and Treasury, in which they work, collects approximately 60% of the Solomon Islands Government's revenue. With 97 staff, backed up by a small team of four advisers from RAMSI, Solomon Islands Inland Revenue Division aims to make sure taxes are collected so that Government has the money to run the country effectively.

“Everybody contributes in some way,” says Mr Tapo, who has served with the Inland Revenue Division for 20 years, including during the tensions, which brought enormous personal challenges to him and his staff.

“Those who do not hold a job where they earn a regular salary still contribute taxes when they pay for items such as telephone calls and petrol – through Sales Tax, and household items such as rice, canned tuna, furniture and radios through Goods Tax.”

One of the biggest challenges Solomon Islands has faced financially is that many businesses have not been contributing back to Solomon Islands, despite running strong, financially-successful businesses here. According to Mr Tapo, this is now changing.

“We've got three approaches,” said Mr Tapo. “Identify businesses that are outside the tax system, help educate business operators so that they're aware of their obligations, and take action against businesses that deliberately try to avoid tax.”

The tough new approach is clearly working. Following the arrival of RAMSI in 2003, the economy of Solomon Islands has seen a startling resurgence. In 2009/2010 the Government is expected to collect more than $1400 million – a stark contrast to the $379 million the country collected in 2003. This additional revenue to the country is set to go towards core services, such as education, health and security.

“Whether driving along Honiara's roads, standing alongside police, or taking their children to school, Solomon Islanders now have greater confidence in the knowledge that they have played their part in building some of the core elements of their nation.”

Achievements so far

Since RAMSI's arrival, progress in improving Solomon Islands revenue has been significant. Some of the achievements include:

  • In 2010, Solomon Islands Inland Revenue Division collected $1billion of revenue for the first time in its history. This is in stark contrast to 2002, when IRD collected just $136.5m. Solomon Islands Customs and Excise Division also achieved record revenue of half a billion in 2010.
  • Solomon Islands Government revenue grew by over 25 per cent each year from RAMSI's arrival until 2008, with positive revenue growth continuing in 2009 despite the Global Economic Crisis.
  • The number of businesses registered as new taxpayers has increased every year.
  • A dedicated Taxpayer Education Team has been established in the Solomon Islands Ministry of Finance and Treasury's Inland Revenue Division.
  • 30 per cent of the Solomon Islands Inland Revenue staff are now undertaking formal part-time study in conjunction with their work, including studying for diplomas and degrees in areas such as business, commerce and management.
  • Inland Revenue Division is now a leading division of the Solomon Islands Ministry of Finance and Treasury, with strong local leadership and management.
  • The Customs Valuation and Offences Act was passed in 2009 to update the way Customs undertakes valuations and issues penalties.
  • The establishment of dedicated Compliance and Valuation teams in Customs to support the ongoing strengthening of revenue collection and control that has contributed to noticeable improvements to complance and revenue collection across the revenue sector. A joint Customs and Inland Revenue Division taskforce has conducted operations since 2008 to improve cargo inspections at the Honiara port. This work resulted in a 39% increase in revenue collected at the port over the five months of the 2009 operation.