Lack of Compliance affects business confidence and reduces Gov’t revenue

Tuesday 22 September, Honiara – The Solomon Islands Chamber of Commerce and Industry (SICCI), as the peak body representing the private sector, aims to promote an environment where business confidence can increase through high levels of compliance with Government laws and regulations by all companies and businesses.

Following a round-table meeting in June hosted by SICCI for its members and Government representatives, a desk-top exercise was conducted which estimated a loss to Government revenue of between $200-$400 million due to lack of compliance to current laws and regulations.

SICCI believes the Solomon Islands Government should improve on its enforcement processes to make sure all companies, both local and foreign, follow all laws, regulations, standards and ethical practices that apply to each company and industry.

This would ensure that consumers are guaranteed safe quality products, employees are guaranteed a safe and healthy working environment while Government sees a boost in their revenue from a broader, equitable collection base.

The SICCI Media and Communications Department has been talking to the heads of some of the biggest companies and major employers in the country to find out more about their compliance practices and how the lack of compliance from some companies is jeopardising business and reducing Government revenue.

“In Solomon Islands, the legislation is very strong. However, its effectiveness needs to be improved through better enforcement initiatives. One solution to drive stronger enforcement would be through public-private partnerships,” Solomon Islands Tobacco Company Limited (SITCO) General Manager, Mr Kazi Mushfiqur Rahman, said.

Sullivans and Nambawan Meat Limited, from the Wholesale/Retail and meat industries, has also expressed similar sentiments.

“Enforcement would be in my opinion the biggest hindrance to ensuring all companies are compliant. Our laws are already in place; however, there can be stronger effort in enforcing them,” their Director and Marketing Manager, Mr Neil Constantine, said.

Inland Revenue Division (IRD) and Customs Division under the Ministry of Finance and Treasury, Ministry of Health and Medical Services, the Bio-security and Quarantine Divisions, the Solomon Islands Ports Authority (SIPA) and Honiara City Council (HCC) are key Government organisations with which companies and businesses usually deal to ensure compliance.

SITCO General Manager, Mr Rahman said: “Currently the Government system relies on disclosures by operators for tax assessments but there is a lack of validation as to accuracy of these disclosures and no systematic reconciliation programs to audit disclosures.  

“We recognize that Government has limited resources so we would like to see how SICCI can work with Government to introduce capabilities and programs that could support enforcement. Random physical stock takes in factories and reconciliation of imported inputs versus production declarations are some simple examples of added controls that can help with enforcement as practiced in other countries,” he said.

SICCI as the private sector representative covering approximately 80% of the Solomon Islands workforce encourages all businesses to comply with their tax responsibilities while at the same time urges Government to ensure that all businesses operate on the same level.

The tobacco industry is one of the highest taxed and regulated industry in Solomon Islands with strict laws and regulations.

“To give you an idea, the manufacturing license regime requires every tobacco operator to pay a $2.55 million licensing fee every year for import of raw materials, manufacturing of tobacco products and distribution of finished goods,” said Mr Rahman.

Meanwhile, the IRD Commissioner, Mr Joseph Dokekana said his division has developed a number of strategies that supports their compliance risk management governance document, targeting more specific industries.

“Currently we are developing seven compliance improvement strategies (CIS). The CIS will outline which industries, sectors or subject that we will be focusing on to improve compliance,” the Commissioner said.

Control of ‘Non-Compliant’ or ‘Potentially Unsafe’ products

Unsafe low quality and cheap products sold by non-compliant businesses can be risky and hazardous for the average Solomon Islander.

Solomon Islands as a country must be concerned about guaranteeing consumers with high quality products by controlling processes so as to deter non-compliant products.

Kokonut Pacific Solomon Islands Ltd (KPSI) produces Certified Organic & Fair-Trade Virgin Coconut Oil from a growing network of more than fifty (50) village producers across the Solomon Islands. But Managing Director, Mr Bob Pollard is concerned with the fact that there remains a substantial amount of cheap imported oil in the market which is unhealthy for the population.

Chief Executive Officer (CEO) of South Pacific Oil (SPO), Mr Carson Korowa says the oil industry welcomes competition, but also calls for a level playing field to operate in.

“In terms of the current market landscape in the oil industry, other companies that operate from floating oil storage are not paying the port dues because they operate outside the ports restricted zone, they are not investing in land-based assets for storage and distribution of fuel products, they are not employing Solomon Islanders in the storage and distribution of fuel in Solomon Islands and not carrying oil spill equipment to protect our environment in the event of an oil spill,” Mr Korowa said.

In the building industry, the Solomon Islands Government spends a substantial portion of its annual budget on infrastructure and construction.

However, General Manager of Tongs Cooperation, Mr Joe Sika said a lot of what the Government procures does not conform to standards resulting in beneficiaries not receiving the expected benefits.

“There is a need for a watchdog to maintain and ensure that quality products are sold at a fair price and laws are enforced on those who do not comply with these standards,” he said.

Solomon Island law mandates that all operators in the tobacco industry must provide annual ingredients disclosures.” In New Zealand these same reports are made available for public viewing on Government websites and we would support the Government mandating a similar practice in Solomon Island for transparency,” said Mr Rahman

Hazard Analysis Critical Control Point (HACCP) is a management system in which food safety is addressed through the analysis and control of biological, chemical, and physical hazards from raw material production, procurement and handling, to manufacturing, distribution and consumption of the finished product.

“We implement and comply to high Australian health and safety food practices and strictly follow HACCP laws,” Mr Constantine, from Sullivans and Nambawan Meat, said.

Market Share

Safe to say, the Solomon Islands business environment lacks a strong enforcement culture. As a result, compliant companies lose significant market share to companies who do not comply with the laws.

In competing with cheaper products on the market, compliant companies lose their market share as consumers will choose the cheaper product over the standards-stringent, and quality product.

This means that Government loses millions of dollars of revenue from compliant companies, revenue which can be used to provide needed basic services for ordinary Solomon Islanders.

Sullivans and Nambawan Meat Limited is Solomon Islands’ largest importers of Beer, Wine, Spirits, Non-Alcoholic Beverages, Meats and General Goods who have been providing Solomon Islanders with a wide variety of products at affordable prices while still maintaining high quality, healthy products across all ranges since 1970.

But they too are feeling the pinch, losing a significant market share due to the increasing number of cheaper products directly linked to non-compliance by other companies in the same industry.

“I would say an approximate 65% of our business have been lost due to non-compliance of Government laws by other companies within the same industry. And this figure is not COVID-19 related,” Mr Constantine, Director and Marketing Manager, said.

For the economy, in a worst-case scenario, a surge in unemployment could lead to rising social problems. This can happen when businesses have to cut costs through reducing labour.

Looking at it another way, for the average Solomon Islander, unsafe low quality and cheap products sold by noncompliant businesses can be risky and hazardous as well.

Company Social Obligation 

In addition, also important to note is the requirement by Government for large investors to fulfil what is called the Company Social Obligation (CSO) which provides assistance for local communities through projects such as building of local schools, clinics, community church houses, improvement of feeder roads and so forth.

Unfortunately, many non-compliant companies are also not fulfilling their CSO responsibilities as required by law, which further jeopardize those compliant companies in the same industry.

For over the 30 years, Tongs Corporation has been the leading supplier of Building Materials, General Hardware, Steel and Plumbing Materials in Solomon Islands.

The company has come behind various community projects in the last few years as part of its social obligation. These include a Kiwi house for Doctors and Pikinini playground at the National Referral Hospital (NRH) in Honiara, supporting the improvement of the surface at the rugby stadium at Town Ground and completion of the rugby gym, other sponsorships to community groups and sporting clubs in the country and more recently, the company provided warehousing space for Government in the fight against COVID-19.

Sullivans and Nambawan Meat has also been a consistent supporter of sports with assistance to golf, football and archery activities within the country to name a few.

“We support church outreach programs in the communities in which we are operating. Also, we ensure upskilling and training of our staff to gain specialized skills within the workforce,” Mr Constantine said.

SITCO has demonstrated its support for the advancement of local communities. “Our core community projects include ‘cash crop seedlings’ distribution to rural agrarian communities.

“Just last year, in 2019 we donated 100,000 seedlings for cash crops like cabbages, eggplants and tomatoes.  On top of that, we have started to establish water filtration plants for remote geographies that lack access to clean water.” General Manager, Mr Rahman, said.

SICCI views on a fair competing business environment

SICCI member companies have been complying with all tax payments to Government including relevant licensing fees and permits as well as meeting high health and safety standards.  However, SICCI has noted that in the last five years, tax paid to Government has dropped significantly.

As a partner of Government and advocator for private sector growth, SICCI is concerned that when the country is losing such substantial amounts of revenue, there will be adverse social impacts such as reductions to budgets for critical sectors including health, education and infrastructure.

As such, SICCI hosted a roundtable meeting on Wednesday 3 June 2020 to discuss ways in which the Solomon Islands Government can maximize its opportunities for revenue collection from businesses.

The meeting was attended by heads of some of the biggest companies in the country, who are part of the SICCI membership, and Government representatives led by Director of the Economic Reform Unit (ERU).

Together, these companies employ a large number of Solomon Islanders as well as support families’ livelihoods through their supply chains throughout the country. On top of that, they invest millions of dollars into the local economy.

Notwithstanding structural and institutional challenges faced by business and industry in the country, these businesses are prepared to invest in the productive capacity of the country and create and sustain local jobs.

Taxes collected by Government benefit local individual Solomon Islanders who can access basic Government services such as health care, education, sanitation and hygiene, employment and so forth.

“We are a reputable local company that has been in the Solomon Islands for 42 years. We invest locally and have a lot to lose if we do not follow the laws,” Joe Sika from Tongs Cooperation, said.

SICCI recommends that the same requirements or obligations and level of commitment apply to all that do business in Solomon Islands.

Lack of enforcement across all business operators in different industries continues to be a SICCI concern, as it is important that businesses coexist in a spirit of competition while complying with Government legal frameworks.

From the round table SICCI hosted in June, it was agreed that a taskforce would be formed to ensure that compliance is monitored with regular review and reporting.

The mechanism for this reporting will be through the quarterly Government-Private Sector Advisory Group platform mandated under the signed MOU between SICCI and the Government represented by the Ministries of Commerce, of Finance, of National Planning, and the Prime Minister’s Office. 

SICCI welcomes this opportunity to work with Government on the challenges facing businesses and the wider economy in the Solomon Islands.

BY PHILIP LILOMO
Media & Communications
SICCI