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Income Tax (Amendment) Act 2005

SOLOMON ISLANDS

THE INCOME TAX (AMENDMENT) ACT 2005

(NO. 8 OF 2005)

Passed by the National Parliament this twenty-ninth day of November 2005

This printed impression has been carefully compared by me with the Bill passed by Parliament and found by me to be a true and correct copy of the said Bill.

Taeasi Sanga (Mrs)
Clerk to National Parliament

Assented to in Her Majesty's name and on Her Majesty's behalf this sixteenth day of December 2005.

Nathaniel Rahumaea Waena
Governor-General

Date of commencement: see section 1(2)

AN ACT TO AMEND THE LAW RELATING TO INCOME TAX; TO MAKE TAX DEDUCTED FROM CERTAIN PAYMENTS A FINAL TAX ON THE INCOME TO WHICH THE PAYMENTS RELATE AND FOR OTHER MATTERS CONNECTED THEREWITH OR INCIDENTAL THERETO.

ENACTED by the National Parliament of Solomon Islands.

ARRANGEMENT OF SECTIONS

SECTION

1. SHORT TITLE AND COMMENCEMENT
2. AMENDMENT OF SECTION 2 CAP 123
3. REPEAL AND REPLACEMENT OF SECTION 3
4. AMENDMENT OF SECTION 4
5. REPEAL AND REPLACEMENT OF SECTION 5
6. AMENDMENT OF SECTION 6
7. AMENDMENT OF SECTION 7
8. AMENDMENT OF SECTION 18
9. AMENDMENT OF SECTION 20
10. AMENDMENT OF SECTION 28
11. REPEAL OF SECTION 29
12. REPEAL AND INSERTION OF NEW SECTIONS 36, 36A AND 36B
13. AMENDMENT OF SECTION 37
14. AMENDMENT OF SECTION 38
15. INSERTION OF NEW SECTIONS 38A TO 38J
16. REPEAL AND INSERTION OF NEW SECTIONS 40 AND 40A
17. REPEAL OF SECTION 43
18. AMENDMENT OF SECTION 57
19. AMENDMENT OF SECTION 58
20. REPEAL OF SECTIONS 59 AND 60
21. AMENDMENT OF SECTION 63
22. REPEAL OF SECTIONS 64, 65 AND 66
23. AMENDMENT OF SECTION 70
24. AMENDMENT OF SECTION 90
25. AMENDMENT OF SECTION 96
26. AMENDMENT TO SIXTH SCHEDULE
27. AMENDMENT TO SEVENTH SCHEDULE

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Short title and commencement

1. (1) This Act may be cited as the Income Tax (Amendment) Act 2005.

(2) This Act shall come into force on 1st January, 2006 and, subject to subsection (3), shall apply for the year commencing 1st January 2006.

(3) This Act shall apply to payments referred to in a tax deduction provision made on or after 1st January, 2006.

Amendment of section 2 Cap 123.

2. Section 2 of the Income Tax (hereinafter referred to as the "principal Act") is hereby amended in subsection (1) as follows-

(a) by inserting the following definition after the definition of "Approved annuity contract"-

"approved form" means a form approved by the Commissioner for the purposes of any application, notice, or other document to be furnished under the Act or any rules made under the Act;",

(b) by deleting the definition of "business" and substituting therefor the following new definition-

"business" includes any trade, or profession, vocation, or other services of independent nature, and any concern or adventure in the nature of trade, but does not include employment;".

(c) by inserting thereafter the following definitions in proper alphabetical sequence -

"employee" means an individual engaged in employment;

"employer" means a person who engages or remunerates an employee;

"employment" includes -

(a) a directorship or other office in the management of a company or body of persons;

(b) a position entitling the holder of a fixed or ascertainable remuneration;

(c) the holding or acting in any public office;

(d) performance under a contract principally for work or services where the Minister provides by Order that the relationship will be regarded as one of employment for the purpose of the tax deduction provision; or

(e) performance under a contract principally for work or services where the parties voluntarily agree with the Commissioner that the relationship will be regarded as one of employment for the purpose of the tax deduction provision;

"employment income" means gains or profits from employment as determined under section 5 of the Act;".

"interest" means -

(a) an amount, whether described as interest, discount, premium of otherwise, whether periodical or a lump sum, as consideration for the use of money or being given time to pay;

(b) an amount that functionally equivalent to an amount referred to in paragraph (a); or

(c) a commitment, guarantee, service, or similar fee payable in respect of a debt or other instrument or agreement giving rise to interest under paragraphs (a) or (b);";

"paid" includes -

(a) applied on behalf of a person either at the instruction of the person or under any law;

(b) distributed, reinvested, accumulated, or capitalised;

(c) credited to an account; or

(d) made available to a person; "; and

"tax deduction provision" means sections 36, 36A, 36B, 37 or 38;";

Repeal and replacement of section 3.

3. Section 3 of the principal Act is repealed and the following new section substituted therefor-

"Income in respect of which tax charged

3. (1) Subject to this Act, tax shall be charged for each year upon the income for that year of any person in respect of-

(a) gains or profits from -

(i) any business, for whatever period of tine carried on;

(ii) employment; or

(iii) any right granted to any other person for the use or possession of any property;

(b) dividends, interest or discounts;

(c) any pension, charge or annuity;

(d) any amount received by way of alimony or allowance under a decree of divorce, a judicial order of separation or maintenance, or a deed of separation or maintenance;

(e) income from any other source whatsoever;

or

(f) any amount deemed to be income under this Act

(2) For the purpose of subsection (1)-

(a) the income of a resident person includes income accrued in, was derived from or was received in Solomon Islands, or elsewhere; or

(b) the income of a non-resident person includes income accrued in or was derived from Solomon Islands,"

Amendment of section 4

4. Section 4 of the principal Act is amended in subsection (1) by deleting the words "section 3(a)(i)" and substituting therefore the words "section 3(1)(a)(i)".

Repeal and replacement of section 5

5. Section 5 of the principal Act is repealed and the following new section substituted therefor-

"Provisions relating to income from employment

5. (1) For the purposes of section 3(1)(a)(ii) and subject to subsection (2), gains or profits from employment means any amount, whether of a revenue or capital nature, arising from employment, including-

(a) any wages, salary, leave pay, payment lieu of leave, overtime pay, bonus, commission, fees, gratuity, or work condition supplements, and including any remuneration paid to the holder of an office;

(b) the value of any benefit-in-kind, whether convertible to money or not;

(c) the amount of any allowance provided by an employer to an employee, including a cost of living, subsistence, rent, utilities, education, entertainment, meeting, or travel allowance, but not including any allowance expended wholly and exclusively in the performance of the employee's duties of employment;

(d) the amount of any expenditure incurred by an employee that is paid or reimbursed by the employer, other than expenditure incurred on behalf of the employer wholly and exclusively in the performance of the employee's duties of employment;

(e) amount as consideration for the agreement by a person to

(i) enter into employment;

(ii) any conditions of employment or any changes to the employee's conditions of employment; or

(iii} a restrictive covenant in respect of any past, present, or prospective employment;

(f) any amount received on termination of employment, whether paid voluntarily or under an agreement, including any compensation for redundancy or loss of employment and golden handshake payments; or

(g) any pension, annuity, or supplement to a pension of annuity received in relation to employment.

(2) The following amounts are not included in gains or profits from employment -

(a) the cost of passages paid by an employer for passage of an employee within Solomon Islands or between Solomon Islands and any place outside Solomon Islands;

(b) the cost of any medical services paid by the employer; or

(c) the amount paid by an employer as a contribution to any approved pension fund or the Solomon Islands National Provident Fund to the extent that such amount does not exceed fifteen per centum of the employee's employment income for the year in which the contribution is made.

(3) The rate of tax payable by an employee on an amount paid by a terminating employer and included in employment income of the employee under subsection (1)(f) shall be computed according to the following formula-

A/B

Where-

(4) Any gains or profits from employment exercised in the Solomon Islands shall be deemed to be derived from the Solomon Islands whether or not they are received in the Solomon Islands.

(5) In this section -

"terminating employer" means an employer who has paid an amount to an employee referred to in subsection (1)(f); and

"termination period" means the lesser of-

(a) the current year prior to the date of termination of employment and the previous two years; or

(b) the actual period of employment with the terminating employer prior to the date of termination.".

Amendment of section 6

6. Section 6 of the principal Act is amended by deleting the words "section 3(a)(iii)" and substituting therefore the words "section 3(1)(a)(iii)".

Amendment of section 7

7. Section 7 of the principal Act is amended by deleting the words "section 3(b)" and substituting therefore the words "section 3".

Amendment of section 18

8. Section 18 of the principal Act is amended by deleting subsection (5).

Amendment of section 20

9. Section 20 of the principal Act is amended as follows-

(a) in subsection (2)-

(i) by deleting the full stop at the end of subsection (2) paragraph (h) and substituting therefore a semi colon; and

(ii) by inserting the following paragraph after paragraph (h) -

"(i) any expenditure incurred in deriving employment income;"; and

(b) by adding the following new subsection after subsection (2) -

"(2A.) If a person is required to deduct tax from a payment under a tax deduction provision and, in the absence of this subsection, the person would be allowed a deduction under the Act for the payment, the person shall not be allowed the deduction until the correct tax required to be deducted has been paid to the Commissioner."

10. Section 28 of the principal Act is amended as follows -

(a) in subsection (1), by deleting the words "a resident individual" and substituting therefore the words "an individual"; or

(b) by deleting subsection (2) and substituting therefore the following new subsection -

"(2) Where -

(a) an individual has become a resident individual for the purpose of engaging in any employment or carrying on of any business in Solomon Islands; or

(b) a non-resident individual is in Solomon Islands for the purpose of engaging in any employment or carrying on of any business in Solomon Islands,

and the individual is present in Solomon Islands for part only of a year, the individual shall be entitled for that year to only such portion of the exemption as the total period of the individual's presence in Solomon Islands for the year bears to the whole of the year."

Repeal of section 29

11. Section 29 of the principal Act is repealed.

Repeal and insertion of new section 36, 36A and 36B

l2. Section 36 of the principal Act is repealed and the following new sections inserted as sections 36, 36A and 36B respectively-

"Deduction of tax from dividends

36. (1) Subject to subsection (2), a resident company shall deduct tax from the gross amount of any dividend paid at the rate of-

(a) in the case of a resident corporate or individual shareholder, twenty per centum; or

(b) in the case of a resident body of persons, other than a corporation and a non-resident shareholder, the rate prescribed in section 33(1).

(2) This section does not apply to a dividend exempt from income tax.

Deduction of tax from employment

36A. (1) Subject to subsection (2), an employer shall deduct tax from the gross amount of employment income paid to an employee as prescribed in the Tax Deduction Rules 2005.

(2) This section does not apply to employment income that is exempt from income tax.

(3) The obligation of an employer to deduct tax under subsection (1) -

(a) shall not be reduced or extinguished because the employer has a right, or is otherwise obliged, to deduct any other amount from a payment of employment income; and

(b) shall apply notwithstanding any law that provides that the employment income of an employee is not to be reduced or subject to attachment.

Deduction of tax from interest

36B. (1) Subject to subsection (2), a resident person or a permanent establishment in Solomon Islands of a non-resident person shall deduct tax from the gross amount of interest paid to a resident person at the rate of 10%.

(2) This section does not apply to interest income-

(a) that is exempt from income tax;

(b) paid to a financial institution; or

(c) interest income paid by a resident individual who is not carrying on a business.

(3) In this section -

"non resident partnership" means any partnership that is not a resident partnership; "non-resident person" includes a non-resident partnership;

"permanent establishment" has the same meaning as in section 38(2);

"resident partnership" means any partnership that has a resident person as a partner; and

"resident person includes a resident partnership."

Amendment of section 37

13. Section 37 of the principal Act is amended as follows-

(a) in subsection (2) -

(i) by deleting the full stop at the end of paragraph (g) and substituting therefor a semi colon; and

(ii) by inserting the following new paragraph after paragraph (g) -

"(h) income from stevedoring services; and

(i) any other income or class of income provided by order of the Minister;";

(b) by deleting subsections (3), (4), (5) and (6); and

(c) in subsection (7) -

(i) by deleting the full stop after the definition of royalties" and inserting a semi colon; and

(ii) by inserting the following definition after the definition of "royalties"-

"income from stevedoring service" means gross payments for the service of

(a) loading or unloading of cargo onto or from ships;

(b) loading or unloading of ship's stores, coal or fuel oil (whether for bunkers or not), passengers' luggage, or mails onto or from ships;

(c) handling or storage of cargo or other goods at or adjacent to a wharf;

(d) driving or operating mechanical appliances in connection with the loading or unloading of ships, or with the handling or storage of cargo or other goods at or adjacent to a wharf;

(e) hauling or trucking from ship to shed or shed to ship;

(f) removing or replacing of beams or hatches;

(g) handling of dunnage or ballast;

(h) preparing or cleaning of holds; or

(i) preparing gear for use in connection with the loading or unloading of ships,".

Amendment of section 38

14. Section 38 of the principal Act is amended as follows-

(a) in subsection (2) -

(i) by deleting the definition of "interest";

(ii) by inserting at the beginning of the definition of "management services" the words "income from;";

(iii) by deleting paragraph (i) of the aforesaid definition and substituting therefore the following new paragraph -

"(i) employment income; or";

(iv) by deleting paragraph (i) of the definition of "professional services" and substituting the following paragraph -

"(i) employment income; or";

(b) in subsection (3)-

(i) by deleting the word "and" at the end of the paragraph (g);

(ii) by deleting the full stop at the end of paragraph (h) and substituting therefore the word "and";

(iii) by inserting the following paragraphs after paragraph (h) -

"(i) income from management services,"; and

(j) any other income or class of income provided by order by the Minister."; and

(c) by deleting subsections (4), (5) and (6).

Insertion of new section 38A-38J

15. The principal Act is hereby amended by inserting the following new sections as sections 38A to 38J respectively -

"Payment of tax deducted

38A. Tax required to be deducted by a person under a tax deduction provision shall be paid to the Commissioner within fifteen days after the end of the month in which the person was required to deduct the tax.

Failure to pay tax deducted

38B. (1) If a person-

(a) fails to deduct tax as required under a tax deduction provisions; or

(b) having deducted tax fails to pay the tax to the Commissioner as required under section 38A,

the person shall be personally liable to pay to the Commissioner the amount of tax, and any penalty and additional tax due in respect of the failure.

(2) A person liable for an amount of tax under subsection (1) as a result of failing to deduct the tax shall be entitled to recover the tax (but not any penalty or additional tax due in respect of the failure) from the recipient of the payment.

Recovery of tax from recipient

38C. (1) If a person fails to deduct tax as required under a tax deduction provision, the Commissioner may recover the tax from the recipient of the payment provided the total amount recovered does not exceed the tax that should have been deducted;

(2) Notwithstanding the recovery of any tax under subsection (1), the person who failed to deduct the tax shall continue to be liable for-

(a) any other legal action in relation to the failure;

(b) the imposition of any penalty or additional tax in respect of the failure; and

(c) the disallowing of a deduction for the expenditure to which the failure relates under section 20(2A).

Evidence of tax deduction

38D. A person deducting tax under a tax deduction provision shall, at the time of deducting the tax, furnish the recipient of the payment with written evidence that tax has been deducted from the payment.

Priority of deducted tax

38E. (1) Tax deducted by a person from a payment under a tax deduction provision-

(a) shall be held by the person in trust for the government; and

(b) shall not be subject to attachment in respect of any debt or liability of the person.

(2) In the event of the death, liquidation or bankruptcy of a person who has deducted tax, any tax deducted shall not form part of the person's estate and the Commissioner has first claim for that amount before any distribution of property is made.

(3) An amount of tax that a person is required to deduct from a payment under a tax deduction provisions shall be -

(a) a first charge on the payment; and

(b) deducted prior to any other amount that the person may be required to deduct from the payment by virtue of an order of any Court or under any other law.

Indemnity

38F. A person who has deducted tax under a tax deduction provision and remitted the tax to the Commissioner shall be indemnified against any claim by the recipient for payment of the deducted amount.

Annual tax deduction certificate

38G. (1) A person deducting tax from a payment under a tax deduction provision shall furnish the recipient of the payment from which tax has been deducted with an annual tax deduction certificate in the form and manner prescribed.

(2) A persons rewired to furnish a return of income for a year shall attach to the return the annual tax deduction certificate for any income in respect of which the deducted tax is not a final tax on the income.

Monthly summary

38H. A person deducting tax from a payment under a tax deduction provision shall furnish to the Commissioner a monthly summary in the form and manner prescribed

Deducted tax treated as tax

38J. Tax deducted under a tax deduction provision shall be treated as tax for the purposes of sections 83(4), 84, 85, 87, 88, 89 and 89A,"

Repeal and insertion of new sections 40 and 40A

16. Section 40 of the principal Act is repealed and the following sections inserted as sections 40 and 40A respectively -

"Set-off of tax deducted

40. (1) For the purposes of this Act, if tax has been deducted from a payment under a tax deduction provision, the amount derived by the recipient of the payment shall be the amount of the income before the deduction of the tax.

(2) Subject to subsection (3), if tax has been deducted from a payment under a tax deduction provision, the recipient shall set off the deducted tax against tax charged on the income represented by the payment.

(3) Subsection (2) shall not apply if -

(a) the tax deducted is a final tax on the income under section 40A; or

(b) the recipient does not attach an annual Tax deduction certificate to the recipient's return as required under section 38G(2) as evidence of the amount of tax deducted.

Deducted tax as a correct final tax.

40A. (1) Subject to subsection (2), this section applies to tax deducted tender the following sections provided the correct amount has been deducted and paid to the Commissioner -

(a) section 36 if the dividend is paid to -

(i) a person who is not resident in Solomon Islands;

(ii) resident body of persons other than a company; or

(iii) resident individual person;

(b) section 36A;

(c) section 36B, if the interest is paid by a financial institution and is derived by a resident individual;

(d) section 37, if the payment is -

(i) made to a resident body of persons other than a company;

(ii) made to a resident individual when the total income of the individual including the payments covered by section 37 for the year is less than $10,000; or

(iii) income is covered by section 37(2)(d) and is derived by a resident individual; or

(e) section 38.

(2) This does not apply to tax deduction under -

(a) section 36 from dividends, section 36A from director's fees, and section 36B from interest if the total amount of dividends, director's fees, and interest income derived by a resident individual person for a year is more than $10,000; or

(b) section 36A from employment income (including director's fees) if the employee has three or more employers concurrently at any time during a year and the total employment income of the employee for the year is more than $60,000.

(3) if this section applies, the tax deducted shall be a final tax on the income of the recipient in respect of which the tax has been deducted and-

(a) the income shall not taken into account in calculating the total income of the recipient;

(b) no deduction shall be allowable under this Act for any expenditure incurred in driving the income; and

(c) if the only income derived by the recipient for a year is income covered by this section, the recipient shall not furnish a return of income as required by section 57 for the year.

Repeal of section 43

17. Section 43 of the principal Act is repealed.

Amendment to section 57

18. Section 57 of tine principal Act is amended in subsection (1) by inserting the words "deriving income" before the words "chargeable to tax".

Amendment to section 58

19. Section 58 of the principal Act is amended -

(a) in subsection (1) -

(i) by deleting from paragraph (c) the words "tax certificate or an annual summary as required under rules 25, 26, 27, 28 and 29 of the Tax Deduction Rules 1981" and substituting therefor the words "an annual tax deduction certificate or monthly summary as required under the Tax Deduction Rules 2005; and

(ii) by deleting all the words that appear thereafter in paragraph (c) and substituting therefor the following -

"the person shall be liable for a penalty of a sum of five hundred dollars and an additional fifty dollars for each month or part month of default,"; and

(b) by deleting subsection (2) and substituting there for the following new subsection (2)-

"(2) The Commissioner may by notice in writing, require a person in default under subsection (1) to furnish such return, certificate, or summary within such period as may be specified in the notice".

Repeal of sections 59 and 60

20. Sections 59 and 60 of the principal Act are repealed.

Amendment of section 63

21. Section 63 of the principal Act is amended by inserting the following subsection after subsection (3) -

"(4) The Commissioner may require a police officer to be present for the purposes of exercising powers under this section,".

Repeal of section 64, 65 and 66

22. Sections 64, 65 and 66 of the principal Act are repealed.

Amendment of section 70

23. Section 70 of the principal Act is amended by deleting subsection (1) and substituting therefor the following subsection -

"(1) If a person required to deduct tax under a tax deduction provision -

(a) fails to make the deduction either in whole or part; or

(b) makes the deduction or purports to make the deduction and fails to remit the deducted tax to the Commissioner in whole or part,

the Commissioner may, when satisfied that such failure was not due to any cause beyond the person's control, charge the person with an additional amount, not exceeding double the amount of tax not deducted or remitted to the Commissioner, as the case may be.".

Amendment of section 90

24. Section 90 of the principal Act is amended in subsection (1) by deleting the words "in respect of any assessment"; and by inserting the word "assessment," before the words "deduction or otherwise".

Amendment of section 96

25. Section 96 of the principal Act is amended -

(a) by numbering the existing section as subsection (1);

(b) by deleting from paragraph (a) of subsection (1) so renumbered the words "under this Act or under any notice" and substituting therefor the words "under this Act, the Tax Deduction Rules 2005 or under any notice"; and

(c) by inserting the following subsection as subsection (2) -

"(2) A Court may order, by notice in writing a person guilty of an offence under paragraph (a) or (b) of subsection (1) to furnish the document or return within such period as may be specified in the notice.".

Amendment to sixth Schedule

26. The Sixth Schedule to the principal Act is amended in paragraph (xiv) bar inserting the words "income from" before the wards "management services".

Amendment to Seventh Schedule

27. The Seventh Schedule to the principal Act is amended in paragraph (vii) by inserting the words "income from" before the wards "stevedoring services".

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