AJC wishes to inform its clients that the Department of Labour & Employment Services has issued a Notice of ANNUAL RETURNS to all employers,
The Notice was issued on 25 November,
The Notice request employers to submit an annual returns within one month,
Returns must be lodged before December 28, 2020 (postponed to January 31, 2021).
The Return must include the following information (copied from the notice and the legislation).
the date of opening of your undertaking;
the business of the undertaking; and
the numbers of workers employed in the various trade categories of the undertaking at such date as shall be specified in the notice.
AJC can assist you in preparing and filing the requested return.
Please complete the questionnaire below to assist you preparing this annual return and thus comply with this obligation.
You can also download the document to fill out here.
Do not hesitate to reach out to us if you need assistance.
Rate & Taxes Office
AJC would also like to remind clients who are VAT registered that you should comply with the new obligation to disclose your TIN NUMBER on all invoices, receipts etc. provided to your customers. No mention of CT number should appear anymore.
Collecting Vanuatu’s public revenue through a land value rate would empower the most productive among us, and protect the most vulnerable, raising money more equitably.
Citizens of OECD member countries are accustomed to equating government revenue with taxation of their income and purchases, among other things. But what if this kind of taxation, while accepted as a necessary evil in the West, was actually an impediment to the well-being of a community? What if we could do better, and raise more revenue more fairly from all segments of society? This is not a far-fetched notion. Economists long ago came to the conclusion that the only fair and efficient means of filling the public purse is not by taxing labour or capital, but by taxing land.
The explanation requires a few steps back.
Over two centuries ago, when the underpinnings of modern economics were taking shape, people like the French Physiocrats and the British John Locke and Adam Smith postulated that the total value of everything produced in a country comes from the returns on three factors of production:
Land (all natural resources including agricultural or mineral lands, fishing or water rights, the electromagnetic spectrum, etc.)
Labour (mental or physical, skilled or unskilled)
Capital (the physical man-made tools of production including equipment, buildings, any product used in the further production of other things)
All governments need revenue to provide the essential public services and infrastructure needed by a civilised community. What most developed countries do today is collect, via taxation, on the returns of all three factors of production: the rent of the land, the wages of labour, and the profits of capital.
What may come as a surprise except to some economists is that all forms of taxation – whether on income, value-added, turnover, licensing – have one shortcoming in common: they reduce the supply of labour and capital. This bears looking at in more detail.
Firstly, labour. If one deprives workers of a proportion of what they get from working, they might decide to work less, or try to pass the tax on to their employers or clients by demanding higher wages or fees. This may reduce the effective earnings of the employer or clients who can no longer so easily afford the worker’s output. Taxing the wages of labour diminishes the supply of useful labour and therefore necessarily diminishes the national output of goods and services.
As for capital, assuming that people invest to the extent it is profitable to do so, once a tax on the profits from capital is introduced, investments with smaller margins of profitability will be abandoned. Workers employed in the affected businesses will lose their jobs, depressing wage levels, while the lack of capital will reduce the productivity of other workers. Any diminution in the profits of capital through taxation leads to a withdrawal of physical capital, through abandonment, non-repair, usage past obsolescence and non-replacement.
Where there’s tax there’s shift
People around the world are used to these forms of taxation, and they’ve been levied for a long time by many governments. But their widespread use doesn’t necessarily mean they are an optimal solution for raising public revenue. Because of the distortions they introduce in economic activity, they inevitably inflict some damage on the economy in the form of deadweight loss or excess burden.
Here’s how that happens: All taxes end up being shifted by businesses and consumers. After a tax is introduced, a whole process of readjustment takes place in economic activity so that the factors of production maximize after-tax rates of return, which will be less than the previous tax-free rate of return on labour and capital.
A lose-lose situation
For example, a doctor faced with an increased tax burden can decide to put up his fees and work fewer hours; his real contribution to the economy is reduced but his income declines less because his fees are higher. The government may collect tax on a portion of his former income but the community still suffers a loss of his contribution. This is a pure deadweight loss – a revenue loss to government and a value loss to the community.
This doctor may also engage in tax avoidance. Instead of altering his real economic output, he’ll seek legal loopholes to reduce his tax burden while continuing to work as much as before. Legal tax avoidance may paradoxically help the economy by limiting the deadweight loss which would otherwise be caused by taxation through withdrawal of labour or capital from active production.
Others opt for illegal tax evasion, which turns otherwise law abiding individuals into criminals, and leads to an attitude of contempt for the law generally and corrupts public morals.
Land doesn’t budge
If taxing the wages of labour or the profits of capital ends in economic damage, then what about taxing the rent of the land?
As the forefathers of economics noted long ago, labour and capital are put to production because of the voluntary actions of human beings. Only land exists and is available for use in production independently of our will. While there is no fixed or automatic supply of willing workers or investment in plant machinery, equipment and buildings, the supply of land is indeed fixed. Land is the only passive, immobile factor of production: it lies, waiting to be used.
Hence early economists realized that public revenue collected from the rent of land (we’ll call it a “land value rate”) was uniquely efficient and could not be shifted by the landholder through any actions of his own. Indeed, the theorem that a tax on land cannot be shifted was the first theorem ever postulated in economics and remains an oft-forgotten key to crafting equitable tax policy.
“Land value rate” is different from property taxes, which are based on the value of the land as well as the buildings and other property located on it. Property taxes can have perverse effects, as can be seen in cities around the world where abandoned buildings are left to deteriorate by landlords in order to minimize their tax bills while they speculate on a future purchase offer. Valuable land is left unused, an eyesore to the community, when it could be recycled into some other industrial or residential use.
By contrast, a land value rate is a portion of the value of the land alone, and disregards the value of buildings, personal property or other improvements to real estate. The value of the land is determined by demand, supported by factors such as amenities and location in cities, fertility in rural areas, quality of ore bodies in mineral fields, etc.
A land value rate is fundamentally a demand by the State for rent to be paid by landholders which represents value being given to them. In this way it’s not really a tax, and so has none of the distorting effects of taxes on labour or capital.
It can even be said it has an incentive effect on landholders to put the land to best use. Whether they conduct business or farming activities, use the land for their homes, or let someone else use it for a fee, they have to pay the same land value rate to the State. If they don’t do anything, or withdraw the land from production, they still are left with the obligation of paying the rate – or letting someone more motivated use or hold the land.
Barring tectonic activity, land stays put. As opposed to labour and capital, land is unique in that it cannot be hidden, taken away, or left to rust away. The landholder can effectively do nothing to avoid a land value rate, which makes it uniquely immune to shifting, avoidance or evasion. If the landholder fails to pay the rate, the land can be put up for sale to discharge the outstanding land value rate (the purchaser will pay the debt to get the property transferred). If he pretends that he doesn’t hold the land, the State can simply claim it as vacant and transfer it to another landholder willing to pay for it and to pay the land value rate. Either way, the land value rate gets collected in full.
Tax isn’t everything
When a government imposes a land value rate, what it is really doing is reasserting its sovereign rights over its territory. It is demanding that merchants, manufacturers, miners, plantation owners and others who use its lands or live on them, and are given by the State the right to use them to the exclusion of their fellow citizens, should pay for the privilege.
Many societies have functioned on this model, with the sovereign or the State relying on these non-tax revenues to meet the public expenses. In feudal England, Lords were assigned land in exchange for paying the costs of running the kingdom; the phrase “real estate” originally seems to have come from “royal estate”.
More recently, the fast-developing economies of the Middle East have collected land rents in the form of oil royalties and have been able to minimise reliance on income taxes. If the royalties on just one natural resource (oil alone) can fund a government, why cannot governments be funded from all the land rents of their sovereign territory?
A “no public revenue” society is impossible. Governments need money to provide the essential public services and infrastructure needed by a civilised community. Where these essential public services do not exist and there is, for example, no law and order, wages and living standards collapse along with land values. By contrast, a “no tax revenue” society is not only possible but highly desirable. A State can fund its essential public services and infrastructure from the rents of the lands which are made more productive by those essential expenditures, in a virtuous circle of value addition. Such a State has a great advantage in terms of economic development over other countries where labour and capital are taxed. A “no tax revenue” society is achievable because all useful public expenditures and the benefits therefrom are reflected in rising productivity of land, labour and capital and thereby ultimately reflected in land rents and land values.
Benefits for all Ni-Vanuatu
A land value rate would have benefits for all members of the Vanuatu community, by providing both an incentive for production and a social safety net.
Instead of being locked up forever in the hands of a few individuals and their descendants, the natural resource wealth of the Republic would be held by those willing to put it to good use. They would be constantly nudged by the obligation to pay a fair charge for the use of land, based on its value, thus encouraged to use it, or sell it to someone else who is willing to do so.
However, the rate would only apply to alienated or commercially used lands, such as urban land or commercial plantations, and would spare communal and customary lands which are available to everyone for common use. Many Ni-Vanuatu engage in subsistence fishing or agriculture, and communal land tenure ensures that every member of the community can always provide for himself and not become a charge upon the State. A revenue system should not force people off their lands into urban slums (see Port Moresby for a sad example). Only the exclusive users of lands that are alienated away from communal use would be asked to make a contribution to the common treasury in return for their landholding rights.
Not only is the implementation of a land value rate compatible with the Constitution of the Republic of Vanuatu, it would meet all “guiding principles” set out in the 2017 Revenue Review and in the Terms of Reference for the 2020 Revenue Governance Committee:
Equity and fairness
Convenience of Payment
Economy of Collection
Economic Growth and Efficiency
Transparency and Visibility
Minimum Tax Gap
Appropriate Government Revenues
Easy to implement
A land value rate is much easier to collect than taxes. The starting point is to build a registry of all land parcels, then to find and regularly update their individual values, ignoring all structures or other human improvements. Real estate sales provide good benchmark values which can be used to extrapolate per square metre valuations. It is also possible to allow landholders to self-assess their land values but on condition that they can be bought out by the State at their own declared valuations with compensation for any improvements as determined by a Court of arbitration.
Once a national land registry and valuation system has been established, each level of government and public utility authority can be assigned its own level of land rate for its own district and for its needed revenues. Thus, a local road or electricity board in an area can set a rate to cover the cost of any required loans for building a new road and get the landholders to contribute through the same revenue collection agency as the national government.
Each provincial or local authority can have its own autonomy in raising and spending its own money but, by doing it on a common base through a common authority, so that people are not subjected to multiple encounters with tax gatherers. In a country such as Vanuatu, economy and simplicity in reducing the number of civil servants required for tax collection is highly desirable. It is far better for a country to collect public revenue from one source competently and efficiently than to try to import a multitude of oppressive and ill-administered income or business taxes based on the uninspiring examples of so-called developed countries.
Reaffirming Vanuatu’s sovereignty
The idea of a tax land rate in Vanuatu comes at an auspicious time. The EU and the OECD have been increasingly pressuring Vanuatu to enforce onerous regulatory requirements and to adopt taxation policies inspired by their own. Their demands are pushing Vanuatu to inflict economic losses on itself in the hope that business activity will be driven away from Vanuatu back to the EU. Whether it will is uncertain, but one thing is certain: the EU will not compensate Vanuatu for the losses.
To be independent means being financially self-sufficient and not reliant on grants or subsidies from other countries. Vanuatu can achieve great prosperity by having a simple, robust revenue system which does not impede but rather propels business, one that can be self-funding by paying for the infrastructure and services which then add value to its lands.
Aid from foreign governments often comes with strings attached, whether stated or implicit. Advanced economies will have much less leeway to try and dictate Vanuatu policy if the nation doesn’t need their generosity anymore. OECD domestic political problems should not be the problems of other countries and economic advice should not be driven by political considerations.
As demonstrated since the dawn of economics, everyone in Vanuatu will have more equal access to opportunities and to the use of natural resources if the nation solely collects revenue from the land. For a country that has been sovereign for 40 years, it would be an even more decisive step towards greater economic strength and independence.
Just a few years ago, the word blockchain was more likely to conjure up associations with fringe tech than serious business. It was first deployed by cryptocurrencies like Bitcoin, whose abstract nature and volatility inspired widely divergent opinion in the financial community, from evangelic worship to blanket rejection. Cryptocurrencies, however, are just one digital asset that can be exchanged using blockchain. And the technology itself is gaining increased traction in mainstream business communities around the world — but not in Vanuatu. Perhaps it’s best to start with a bit of background.
Blockchain is here to stay
Deloitte’s 2020 Global Blockchain Survey reveals that the technology has passed a tipping point and is now “solidly entrenched in the strategic thinking of organizations across industries, sectors, and applications. (…) Leaders no longer consider the technology ground-breaking and merely promising—they now see it as integral to organizational innovation. This year, the C-suite is putting money and resources behind blockchain as a strategic solution in more meaningful and tangible ways”.
Sharing the truth
Blockchain, also known as Decentralized Ledger Technology (DLT), is a digital ledger system where entries are related chronologically and collectively managed by a network of computers. Any participant in the network with the proper authorization can view the entire ledger without relying on an intermediary or any one authority; and data cannot be changed without the approval of other participants. As a result, each and every authorized party in the network has access to a single, shared truth, which fosters confidence in transacting across multiple sites or geographies.
Where there’s truth, there’s trust
The key element behind blockchain’s broad appeal is its ability to inspire confidence in the security of any trade of digital assets — and not just for cryptocurrencies but for anything represented in digital form that has intrinsic or acquired value. These can be digital representations of land, commodities or fiat currency; tokenized debt or equity; or financial instruments or derivatives, with dozens more possibilities on the horizon. The potential is huge in such areas as title documents, patient data, intellectual property and product traceability.
Where there’s trust, trade inevitably follows
In the financial world, we’re already seeing a significant adoption of blockchain. For instance, a group of large banks including Citi, Standard Chartered, HSBC, BNP Paribas and ING are using Contour‘s DLT platform to shrink processing time for trade letters of credit from 5 to 10 days to less than 24 hours.
Global financial messenger SWIFT is talking about deploying DLT-based services for its 11,000+ members. SWIFT cites five benefits: trust in a disseminated system, efficiency in sharing information, complete traceability of transactions, simplified reconciliation, and high resiliency. However, it also notes opportunities for improvement in data controls, standardization, identity management and cybersecurity, among others.
Other large organizations currently share the same mix of enthusiasm and reservations. But there’s no reason concerns can’t be addressed by technological improvements and regulatory solutions. And that’s already happening.
Building an international regulatory framework
In a Guidance document issued in 2019, the Financial Action Task Force (FATF) clarified how its rules regarding Money Laundering and Terrorism Financing (ML/TF) should apply to “virtual asset service providers”. They included recommendations for monitoring, licensing, customer due diligence, recordkeeping and suspicious transaction reporting. “While virtual asset activities may serve as another mechanism for the illegal transfer of value or funds, countries should not necessarily categorize [them] as inherently high ML/TF risks”, the Guidance document read.
As the main standard-setting body in the fight against financial crime, not only has the FATF never advocated for prohibition of any DLT technology, but it has issued clear guidance on what national jurisdictions could do to address potential risk.
In Vanuatu, plenty of prudence but little progress
As all this suggests, we’re at a tipping point and it’s clearly a matter of time before blockchain gets broad traction around the world. Indeed, jurisdictions that resist the trend may risk their future viability as financial centres.
Vanuatu has not evolved on this issue for some time now. In the fall of 2017, the Reserve Bank of Vanuatu (RBV) “strongly advised” against using cryptocurrencies and deemed them “illegal” in Vanuatu under the RBV act. The Vanuatu Financial Intelligence Unit (VFIU) echoed that statement, adding that a regulatory framework needed to be put in place before the nation embraced digital currency transactions. Under the advice of the Council of Ministers, the Minister of Finance instructed the Vanuatu Financial Services Commission (VFSC) to suspend the granting of Financial Dealer Licenses for blockchain and cryptocurrency dealing and appointed a task force with representatives from the RBC, VFSC and other specialists in the field to work on a “proper legal framework”.
Almost two years in, we’ve seen negligible progress on this front.
Others are taking the lead
In the meantime, other jurisdictions have charted new territory in innovative regulatory frameworks that seek to ensure proper oversight and control of the trade in digital assets. Over the past three years alone:
Gibraltar introduces the Distributed Ledger Technology Regulatory Framework, placing cryptocurrencies under the supervision of the Gibraltar Financial Services Commission. Gibraltar now bills itself as the first regulator to do so.
The European Commission includes virtual asset providers in its Fifth Anti Money Laundering and Terrorist Financing Directive, making them “obliged entities” under Anti-ML/TF regulations. All countries in the European Economic Area fall under this directive, which allows for these types of businesses to operate while properly managing risk.
Thailand passes the Digital Asset Decree of 2018, establishing the necessary requirements for a business to offer or provide operations for digital assets. The Decree covers cryptocurrencies as well as digital tokens and is overseen by the Securities and Exchange Commission. Three types of licenses are available for Digital Asset Exchange, Digital Asset Brokers, and Digital Asset Dealers.
Singapore passes the Payment Services Act, expanding the regulatory scope of the Monetary Authority to include the offer or issue of digital tokens falling within the definition of “securities”.
Hong Kong’s Securities and Futures Commission advises operators that digital tokens are considered securities, and any person who markets and distributes them to Hong Kong investors is required to be licensed or registered for Type 1 regulated activity (Dealing in securities) under the Securities & Futures Ordinance (SFO).
Vanuatu has yet to report any progress.
The time to act is now
As shown above, momentum is building and Vanuatu cannot afford to sit on the sidelines. What’s more, online trading is one of the few sectors where Vanuatu can still grow its services economy, foreign currency inflows, and overall GDP, especially as Covid-19 has gutted our tourism sector for the foreseeable future.
We all know that for every new business that sets up in Vanuatu, countless jobs are created and sustained through demand for professional services such as accountants, lawyers, IT and real estate. All of which further stimulates the circulation of money.
But why look overseas for examples of DLT’s potential benefits? Last year, Oxfam’s pilot program used cryptocurrency for disaster relief in two Efate villages. So once again, DLT or blockchain is much more than cryptocurrencies. It can make processes more efficient and secure in many areas of society, from healthcare to environment, transport to education.
How to address Anti-ML/TF regulation concerns
There’s certainly a lot of media hype surrounding blockchain, and much of it should definitely be taken with a grain of salt. But as Deloitte’s 2020 Blockchain Survey suggests (see above), the growing interest in DLT from businesses around the world is real. What’s more, it could translate into market share for Vanuatu. The trend in jurisdictions around the world are clear indicators that regulating blockchain, including cryptocurrencies dealing, is in our national economic interest.
Some, like Malta, have issued convoluted state-of-the-art regulations that have notably failed to attract much investment. But most simply adjusted their current legal systems, especially their Anti-ML/TF regulations, to clarify the status of blockchain services, with an emphasis on the registration and monitoring of digital asset service providers.
Vanuatu’s legislation can be amended to ensure such businesses conduct activities in accordance with our Anti-ML/TF objectives and subject to the same oversight as all other “reporting entities” under the legislation. And it could even be done with advice from FATF and the EU to ensure stronger alignment.
Getting our feet wet
There are low-risk and cost-effective ways for Vanuatu to make inroads in DLT, such as restricting the trade of digital assets to FDL platforms. This would mitigate risk while providing a sandbox for the Vanuatu fintech industry to develop and innovate, giving our authorities time to adapt current regulations for the coming “token economy”.
Whatever avenue we choose, it’s fair to say that maintaining a moratorium on cryptocurrencies and similar assets is not sustainable — not when these technologies are going mainstream worldwide. It’s time for Vanuatu to look at blockchain from a fresh perspective. Perhaps it’s even time not just to get our feet wet but to actually take the plunge. Our future financial health may hang in the balance.
Oxfam’s Unblocked Cash project is just the beginning. Let’s take the Vatu to the digital level.
Blockchain-based digital money has been around for about a decade but, due to the sheer volatility of cryptocurrencies like Bitcoin, it’s still often viewed as an obscure geek hobby, or at best some form of online gambling.
But all blockchain currencies are not created equal. “Stablecoins”, for example, have been created specifically to address issues of volatility and are garnering interest around the world for their potential benefits in replacing or complementing physical money. Other forms of blockchain tokens are reaching outside the boardrooms of tech start-ups and demonstrating their real-life potential for mainstream use, without the risks associated with cryptocurrencies.
No need look further than our own shores for proof. Starting in October this year, residents of Sanma affected by Cyclone Harold can use digital tokens to buy relief goods through Oxfam’s Unblocked Cash project, a partnership with the Vanuatu Business Resilience Council, Australian fintech Sempo and a consortium of 12 local and international NGO and private sector partners.
Instead of donations in cash, which in the past have proven expensive and cumbersome, aid recipients are provided with an NFC card topped up with digital tokens. Local shopkeepers are issued a mobile phone with an app to process payments. All tokens loaded into the blockchain by Oxfam are collaterized by actual Vatus deposited at the Reserve Bank of Vanuatu. All transactions are traced in a digital ledger, making it easy to pay back vendors quickly without the need for reconciliation. Every week they receive actual Vatus while the corresponding digital tokens are destroyed. In this way the balance of digital tokens remains the same as that of the collaterized account, keeping the blockchain in sync with the real world.
The Unblocked Cash project, which was piloted last year in the Pango and Melee Mat communities in Efate, clearly sped up relief delivery while reducing costs and ensuring full transparency over transactions. It’s been such a success that it was awarded 1M euros from the European Commission’s Horizon 2020 prize and Oxfam is now planning to replicate it across the Pacific and beyond.
Digital changes everything
This is actually the second significant instance of digital money being used effectively in Vanuatu. The first was Vodafone’s M-VATU mobile payment system. These deployments may have targeted two specific sets of users (families in need, Vodafone subscribers) for limited use, but it doesn’t take much imagination to see the possible benefits of bringing the technology to all individuals and corporations in Vanuatu for everyday use.
Digital money is a very practical solution to a real Ni-Vanuatu problem. Our country suffers from a highly fragmented domestic payments network which is hugely costly and inefficient and weighs down our economic growth. Having Vatus in electronic form would make everyday transactions easier for everyone wherever they are located.
With a digital Vatu (a D-VUV? Datu?), there’s no need for bank accounts: the money would live in the blockchain and change hands through a simple smart phone app. People who are less tech savvy or lack an Internet connection could use SMS commands on their push-button phone, or top up the same type of NFC cards used in the Unblocked Cash project. The D-VUV would be easy to use, safer than carrying physical money, and more economical for both buyers and sellers than existing electronic solutions such as point-of-sale systems or wire transfers.
On a socio-economic level, it would broaden financial inclusion to the farthest reaches of our 83 islands, including better access to lending, which would empower consumers and small businesses and contribute to GDP growth. It would ensure economic resilience in the face of natural disasters and public health crises. It would help the government better monitor revenue collection and public expenses, as well as AML/CTF compliance from everyone. It would facilitate e-commerce and digital innovation, and propel our nation onto the front lines of the digital age.
Many other countries have come to similar realisations and are currently exploring options to extend their fiat currency to the virtual realm.
In a survey of 66 central banks in both advanced and emerging economies last winter, the Bank of International Settlements (BIS) found that 80% of respondents were currently looking at the possibilities of a blockchain-based Central Bank Digital Currency (CBDC), for either wholesale or mainstream use. Some 40% of central banks had progressed from conceptual research to experiments, and another 10% had developed pilot projects.
Some are leading the way. The Bahamas’ “Project Sand Dollar” is a pilot for a general purpose CBDC where the holder would have a direct claim on the central bank, legally equivalent to an account. A key benefit would be to promote financial inclusion over the Caribbean nation’s 700 islands, cays and inlets, which traditional institutions cannot maintain adequate service.
The Eastern Caribbean Central Bank is also running a pilot project for a token-based CBDC in its currency union comprising the island economies of Antigua and Barbuda, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Anguilla and Montserrat. Motivations driving the pilot project include payment efficiencies, financial inclusion and the promotion of innovation and inclusive business growth.
Sweden’s Riksbank is also conducting a similar pilot of an “e-krona”, citing a sharp decrease in cash usage in recent years. The Riksbank also takes part in a research group along with the BIS, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank to share members’ experiences and assess the potential cases for CBDC in their jurisdictions. Meanwhile in China, the government announced in 2019 that it would launch a People’s Bank of China digital currency, starting with a pilot project at the end of 2020. The country’s 1.4 billion inhabitants would make it the world’s leading CBDC.
Central banks have a role to play
At the moment no CBDC has yet been implemented on a national scale, and standards and best practices for such a roll-out have yet to be defined. But these initiatives will eventually lead to public alternatives to the many private stablecoins currently in existence or in development, such as Facebook’s Libra project.
A speech in May by Yves Mersch, member of the executive board of the European Central Bank, clearly articulated the need for central banks to get in on the blockchain money game. “One implication of financial technological innovation could be an increasingly cashless economy in which people may no longer be able to hold risk-free central bank money”, said Mersch. “Reliable access to money would then hinge on the stability and efficiency of private retail infrastructures. And trust in money itself would rely on trust in the intermediaries that issue private money. This is one reason why central banks keep fully up to speed on financial technological developments.”
Not only can CBDCs help central banks keep their fiat currency relevant and competitive in a digitized world, they’re better suited to regulatory oversight and consumer protection than privately issued coins. As noted in a recent report by the European Central Bank (which cited Facebook’s Libra as an example), “to reap their potential benefits without undermining financial stability, we must ensure that stablecoin arrangements do not operate in a regulatory vacuum.” The position is echoed in an IMF analysis: “large technology firms with enormous global user bases offer a ready-made network over which new payment services can quickly spread. Risks abound, however—so policymakers must create an environment that maximizes benefits and minimizes risks.”
Stability meets initiative
The challenge of course is for central banks to develop the necessary know-how. These venerable institutions are typically not equipped to handle technology selection, app development, brand management, not to mention customer interaction.
One solution floated by the IMF is a “synthetic CBDC” or “sCBDC” where private providers are the ones issuing blockchain tokens on condition that these are fully backed by central bank reserves. The People’s Bank of China for example requires giant digital money providers AliPay and WeChat Pay to do precisely that. Of course, private issuers must satisfy a number of requirements related to AML/CTF and data protection among others. In essence the sCBDC is a public-private partnership where central banks focus on their core function –ensuring trust and efficiency– while private providers are placed under appropriate oversight where they can focus on what they do best: innovate and interact with customers.
Why not here ?
Following that idea, the Vanuatu Reserve Bank could work with the private sector to build a digital money system while underpinning the stability and trust needed for it to work.
The mechanics are proven. One approach would see 100 actual Vatus held in a trust account at the Reserve Bank for every 100 D-VUV issued as digital tokens. Every time a D-VUV is minted on the blockchain, a Vatu is deposited in the trust account; and every time a D-VUV is “exchanged” for an actual Vatu, it’s automatically removed from the blockchain. This is exactly what the Unblocked Cash project is doing, except on a national scale and under control of the Reserve Bank to ensure regulatory oversight.
Vanuatu should build directly on Oxfam’s initiative, starting by inviting them and their partners to consult on the development of the D-VUV. They have already demonstrated their agility in deploying digital payments in the most difficult environments; they certainly have the competency to make them work in everyday life. And while any hesitancy about the wholesale adoption of a digital currency is understandable, a cyclone has already shown us which way the wind is blowing.
The coronavirus has forced countless people around the world into full-time telework. But, for many knowledge workers who don’t need face-to-face interaction, telework has become a choice whose popularity has been growing by leaps and bounds. And a number of them don’t actually stay home – they move across time zones, looking for nicer climates in low-cost locales, settling for months on end wherever their hearts desire and Wi-Fi allows.
These location-independent workers, also called digital nomads, are roaming with their laptops from Bangkok to Lisbon, Ubud to Mexico City, Taipei to Belgrade. Their criteria for where to settle down are many: cost of living, safety, weather, local food, etc. The one thing that doesn’t influence their choice is the location of their employer or, in the case of freelancers, their clients. As long as they can get online, they’re good to go.
It’s hard to say how many digital nomads there are out there. In the US, the annual State of Independence study by MBO Partners puts the figure at 7.3 million people in 2019, rising year after year. Many belong to the tech or creative industries, such as writers, programmers, designers and e-marketers. But anyone who doesn’t need a physical presence to do their work is a candidate for this lifestyle. And the trend is expected to grow.
A catalyst for telework
With Covid-19 forcing employers around the world to keep employees home as much as possible, telework has never been so widespread. While this is assumed to be temporary, many employers from developed countries who had previously been slow to adopt telecommuting have finally made the investment in technology and the switch in management practices necessary to operate a “tele-workforce”. And in those industries where telework is possible, “telecommuting will likely continue long after the pandemic”, notes a report from the Brookings Institution(it also notes that teleworkers tend to be higher earners).
Large corporations in tech and finance have already announcedthat some of their employees can keep working from home past the current crisis, either full- or part-time. This will allow them to cut costs on expensive office space, while workers can locate further away from expensive urban cores. Even in notoriously traditional Japan,Fujitsu which will halve its office space and let employees work from wherever they want.
Another trend fuelling telework is the tightening of immigration rules in some countries where even skilled workers from developing countries have a hard time getting visas. In Post-Brexit UK for example, the erection of a frontier with Europe and the introduction of a points-based immigration system will force companies to hire foreigners remotely. Already 18% of the 3 million jobs in the UK tech sector are held by foreigners, without the need for them to set foot in the country.
Surely a good portion of these new hordes of remote workers will elect to travel to other places while on the job. If telework is on the rise, then digital nomadism is sure to follow.
Working in the grey
In many countries, digital nomads’ only obstacle – besides spotty Wi-Fi – is their immigration status. Even those with a “powerful” passport often fall between categories. They’re not tourists since they’re staying; they’re not workers since their output is not consumed locally; they’re not investors since they’re not injecting capital.
Many resort to sketchy workarounds and bureaucratic sleight of hand in order to keep working. Digital nomads in Thailand and Vietnam, for instance, are officially tourists and need to do a visa run every few months to keep their status. Some apply for a class to qualify as students; some pay a company to endorse them for a work visa without there ever being an actual job; others create a company whose sole function is to gain them accreditation as investors. In most cases, their immigration status is hardly conducive to the realities of telework, falls in a legal grey area at the mercy of the authorities, and costs them a lot of time and money. Until recently, only a handful of immigration regimes have explicitly welcomed digital nomads, such as Germany’s Freelance “Freiberufler” Visa (up to 3 years), the Czech Republic’s Long Term Business Visa (1 year), Spain’s Self-Employment Work Visa (1 year), or Mexico’s Temporary Resident Visa (up to 4 years).
First mover advantage
During the pandemic, the sharp rise of telework has coincided with another trend: the sudden fall of international tourism. And this summer, some countries which depend heavily on the latter have been pivoting to better cater to the former, putting themselves in an advantageous position to profit from these virtually no-cost sources of foreign exchange.
Since August 1, Bermuda has offered the Work from Bermuda Certificate program, adapted from an existing residency program. The online application involves an upfront cost of $263 per person, with requirements including health insurance and proof of employment or enrollment in higher education, ensuring that a nomad has sufficient health insurance, or can afford to pay for a local care package. “No need to be trapped in your apartment in a densely populated city with the accompanying restrictions and high risk of infection; come spend the year with us working or coding on the water”, Premier of Bermuda E. David Burt told digital nomads in a statement. The country has a stringent coronavirus testing regime and has successfully managed the pandemic so far.
Since July 12, the BarbadosWelcome Stamp grants a year-long span for visitors to work remotely on the island. Applicants must pay either £1,590 (US$2000) per person, or £2,385 (US$3000) per family, prove earnings of at least £39,760 (US$50,000) per year, and have health insurance. There’s also some national security vetting. “We recognize more people are working remotely, sometimes in very stressful conditions, with little option for vacation. Our new [visa] allows you to relocate and work from one of the world’s most beloved tourism destinations”, Prime Minister Mia Amor Mottley said in a statement.
As of August 1, Estonia offers a Digital Nomad Visa that lets location-independent workers live in Estonia and legally work for their employer or their own company registered abroad. The Baltic country plans to issue around 2000 such visas annually to applicants who need to prove they can telework sufficiently to earn the monthly income threshold for living there, currently set at 3,504 euros, and have valid health insurance. The application fee only is 100 euros. All entrants are subject to a 14-day isolation period to help the country maintain its low Covid-19 infection rate.
Starting September, Georgia will issue new remote worker visas for people to live and work there for up to one year. The online application is expected to ask for proof of employment and valid insurance, and all applicants must submit to a 14-day quarantine upon arrival – the country still shows a relatively low Covid-19 infection rate.
Fresh foreign income for Vanuatu
Until now Vanuatu has been very low on the list of destinations for global digital nomads (this website ranks Port Vila 1,170th with a score of 2.89/5 according to 199 reviews). The remoteness of the country is one explanation, as are its lagging Internet connectivity (until recently) and its lack of adequate visas.
But in the age of Covid-19, Vanuatu has a better shot at attracting the teleworking crowd. Our country is one of the few remaining places on Earth that have been spared by the pandemic, an attractive quality for remote workers in pandemic-embattled countries close to us like Australia. Those coming from further away, in Europe or East Asia, can also be tempted as other safe options are few and far between, especially if they’re looking for a tropical climate as winter encroaches in their hemisphere.
As for the Internet, connectivity has been greatly improved in recent years, putting Vanuatu on par with other tropical destinations. Our bandwidth in populated areas is high enough to perform most typical digital nomad jobs.
The issue of long-term visas remains an obstacle. As of today, the only persons eligible for a Residence Visa are:
Partners or children of Vanuatu citizens,
Employees with a local work contract,
Key investors in a local company that employs citizens,
Self-funded residents or Vanuatu land lessee, who are forbidden to work.
The rise of digital nomads coupled with the pandemic gives us a unique chance to develop this new source of foreign currency. As a country dependent on foreign income, we should seize this opportunity with the same level of dedication which for decades we’ve put into attracting FDI.
Bringing the knowledge economy to our shores
Welcoming teleworkers can have a positive and immediate impact on the demand side, as these new arrivals consume local goods and services, thus contributing to the health of Vanuatu businesses. Many are highly skilled and educated, high income earners who make big expenditures. They are not taking job opportunities away from locals but tend to import their work with them, along with a substantial amount of much-needed foreign cash for our economy.
As members of the knowledge economy, teleworkers bring new kinds of expertise and innovation skills with them. Software engineers. Chief Technology Officers. Data Scientists. These and many other specialists are currently lacking in Vanuatu. New people skilled in these areas can inspire our youth, showing how such careers are viable, realistic options for the future, and helping build local capacity and skills. There are no borders to the new economy. Imagine, in a few years we could see FDI funding a Ni-Vanuatu data architect’s homegrown start-up right here.
We are currently in the unique and enviable position of being able to offer digital nomads the beautiful, safe, COVID-free environment they’re looking for. The assets and attributes that made Vanuatu a coveted tourism destination can also help us attract some of the best and brightest in the knowledge economy.
Here are some ways we can do so.
Three ideas on how to make our move right now
Proposition 1: Open the Permanent Residency Visa to Digital Workers (freelance or employee)
1 year Residency Visa
renewable every year
same price as normal residency visa: 57,600 Vatu per year
One of the following proofs of sufficient funds:
a permanent job overseas that pays over 4 million Vatu per year;
income of over 4 million Vatu during the past year as a freelancer or an employee;
Liquid assets of more than 4 million Vatu.
Proof of Heath Insurance coverage
Remote employees of foreign-based businesses
Freelancers who typically work online
People with this type of Visa would be akin to long-term tourists. If we attract 1,000 of them for 52 weeks, they’ll have the same impact on the economy as 52,000 tourists (1,000 x 52 weeks).
In order to unlock even more positive value from their stay, we could encourage them to register as employers at the VNPF, and to hire local domestic help as well as digital workers to help them sell their services online.
Proposition 2: Create a new Business Visa on Arrival
Free on arrival
Directors of International Companies
People that spend a short time in Vanuatu doing business (e.g., visiting clients, conference attendants, etc.)
This type of “corporate-tourist” visa would encourage people to come to Vanuatu to do short-term business. For example, it could be used by participants in annual corporate board meetings held by international companies.
Proposition 3: Create a new Business License category called “International Company Export”
Strictly for exports (product or services), no local sales/revenue
Small nominal license fee, for ex. 20,000 Vatu
No VIPA approval needed
International Companies (IC) registered with the VFSC who want to export products and services from Vanuatu
We should allow and encourage International Companies (IC) to operate from Vanuatu, with facilities and employees physically located here. At the moment they need to obtain approval from VIPA to do so, and they get rejected because they don’t fit into any existing categories.
International Companies that set up shop in Vanuatu to operate an export business should be exempt from VIPA approval because they are not investing to operate a business in Vanuatu (i.e. selling to Vanuatu customers), they are strictly investing to export from Vanuatu.
International Company Export licensees would be allowed to hire local employees, register at the VNPF, import skilled workers, and follow other rules like any local company. But they would be forbidden to offer their products or services in Vanuatu. This way they wouldn’t compete with any local business operating here.
Not only would these companies create job opportunities for Ni-Vanuatu, they would be also able to hire Digital Visa holders, helping attract even more to our shores. They could also hold their annual Board meetings here by getting a Business Visa for their directors. You can see how our three propositions could work in concert to bolster Vanuatu’s place in the knowledge economy.
Attracting the best and the brightest
Once we agree on the terms for attracting teleworkers, the next challenge will be to market Vanuatu to them in a compelling way. Right now we have a unique opportunity to attract some of the world’s most highly skilled people and stimulate true wealth creation for our nation. Our development is linked to our capacity to seize that opportunity.
Agriculture and manufacturing are good, but they are only part of a healthy, modern economy. They create low-paying jobs and need to be highly automated and mechanized to become efficient and lucrative.
The knowledge economy is the future, and it’s where we should be heading.
Countries all over the world – rich countries – are competing to attract the highest performers, the best researchers, the smartest brains. They attract them with scholarships; with fully financed research teams and laboratories; with signing bonuses; with fast-track residency and work permits.
Locking down our labour market to the world is destroying a lot of potential value for Vanuatu and is just making it harder for the private sector to invest and to foster the growth the country so desperately needs.
These proposed changes are not just about opening up to more foreign income and investment; they’re about propelling Vanuatu into the future by turning a great crisis into a great opportunity.
The Business Licence year started on 1 January, but you have until 31 January to renew.
If you have not yet renewed your Business Licence, details about how you can do so are below.
How to renew
You must complete the details on the application form, sign, attach supporting documents, and lastly file at the office of Customs during office hours after completing a payment for your Business Licence fees.
Business Licence fees are based on annual turnover and business categories. You’ll need to confirm your business’ 2015 actual turnover, and 2016 projected turnover. Customs will also ask that you to give additional information, such as the number of local and expatriate staff your business currently employs.
But you do have to hurry, the closer you get to 31 January, the greater the waiting time will be…
Let AJC renew it for you
If you’d rather not wait in queue, or don’t have the time to complete all the steps involved, get in touch with us.
Email us a copy of your 2015 Business Licence (and your latest VIPA renewal certificate if you’re a foreign investor) and we’ll renew it for you. You can make your payment to us by cash, cheque, or direct transfer. It just takes a moment and, best of all, there is no need to queue!