Cook Islands: Ministry of Finance

Cook Islands Ministry of Finance News

RMD Numbers and Bank Accounts

The Cook Islands Herald recently outlined that a withholding tax of 30 per cent would apply on interest earned on bank deposits in the Cook Islands, this is not the case.   Unfortunately, no attempt was made to verify with MFEM that the article was correct prior to publishing.
 
In the Cook Islands the only withholding tax which applies on interest earned on bank deposits relates to non-residents of the Cook Islands. Non residents are required to pay a final withholding tax of 15 per cent on interest.  No withholding tax applies to interest earned on bank deposits by Cook Islands residents.
 
The requirement to have RMD numbers linked to bank accounts from 1 January 2015 was made law in December 2013 when the Parliament passed a large number of changes to the Income tax Act.  
 
The changes made at the time significantly decreased the income tax paid by Cook Islanders; removed the 15 per cent withholding tax that applied to interest earned by residents; and incorporated administrative changes that would assist MFEM to improve its ability to collect taxes (which ultimately pay for public services such health, education and infrastructure) and improve the services it provides to the taxpayers of the Cook Islands.
 
Currently, there is no technological interface between taxpayers and MFEM. Most of the interactions on taxation are paper based, with taxpayers having to complete manual forms and MFEM staff then inputting those details into the Revenue Management System (RMS).  
 
In a concerted effort to modernise tax collection in the Cook Islands, there will be a two phase improvement of the RMS predominantly focusing on incorporating a web-lodgement system and automatically capturing data from employers and banks. 
 
The first phase will focus on allowing businesses to submit their PAYE and VAT details online and this is expected to be operational by July 2015. 
 
The second phase, will involve individuals being able to access their details and lodge their tax returns online.  
 
Currently, taxpayers have to do a lot of paperwork to fulfil their obligations and also have to wait some time to get updates from MFEM on tax payment details.  The first phase of automation will significantly improve MFEM’s ability to service taxpayers in this.  The upgraded system will eventually allow individuals and businesses (or their accountants) to:
 
  • access their own taxation information online;
  • reduce paperwork between the taxpayer and MFEM;
  • lodge their returns online;
  • receive updates on returns; and
  • lodge their returns whilst out of the country.
 
There has been some discussion around the requirement for bank account holders to submit RMD numbers to the banks.   It is a common practice to require a bank account holder to submit the equivalent of an RMD number or a social security number.  In Australia and New Zealand there is a legal requirement to provide the equivalent of the RMD number.  In both countries if this is not submitted a withholding tax applies to both residents and non residents.  In Australia this rate is 45 per cent and in New Zealand it is 38 per cent. In the Cook Islands the withholding tax of 15 per cent only applies to non residents of the Cook Islands.
 
Increasing the use of the RMD number in the overall taxation system is a crucial component to successfully modernising the system to which will ultimately deliver benefits to the taxpayer and the community at large.  That is why a requirement that every bank account in the Cook Islands have an RMD number attached to it was introduced.  Obviously, it is expected that compliance will also improve and that everyone pays their fair share of tax.  
 
These changes will save taxpayers time in lodging their returns, ensure that the right amount of tax is paid by everyone and reduce the opportunities for people to evade tax for the betterment of the country as a whole.
 
 

New campaign to improve Pacific's population statistics

Updated 8 January 2015, 12:00 AEDT

Pacific nations are aiming to dramatically improve their gathering of population statistics over the next decade.

Gathering facts and figures on births, deaths, marriages and health problems are vitally important to governments to assist in deciding what programs to implement.

The 10-year campaign, focussing on civil registration and vital statistics, was agreed on at an Asia-Pacific ministerial meeting held in Thailand late last year.

The Cook Islands Health Minister, Nandi Glassie, in his interview with Radio Australia says that while gathering accurate statistics sounds boring, it is something that Pacific nations need to focus on if they want to make good decisions.

Presenter: Bruce Hill

Speaker: Nandi Glassie, Cook Islands Health Minister

2014/15 Half-year Economic and Fiscal Update

The Ministry of Finance and Economic Management has published the 2014/15 Half Year Economic and Fiscal Update via MFEM website www.mfem.gov.ck.  
 
2014/15 Half year Economic and Fiscal Update (HYEFU)
The 2014/15 HYEFU provides an update of the economic and fiscal forecasts which were recently made at the time of the 2014/15 Budget in October 2014, and provides analysis of the changes in key economic variables and their impact on the fiscal status of Government. 
 
Given the publishing of the 2014/15 Budget in October 2014, there is limited data and information to update, many areas remain largely unchanged from those presented in the 2014/15 Budget.
 
Estimated Underlying Budget Balance 2014/15
At the time of the 2014/15 Budget (October 2014) the underlying operating balance was forecast to be a small operating surplus of $0.009 million. Due largely to downward revisions in tax revenue, the net operating balance for 2014/15 is expected to be $0.501 million.
 
Total tax receipts for 2014/15 are expected to be $1.0 million lower than forecast at the time of the 2014/15 Budget due to downward revisions in income, company and import taxes. A large proportion of the revision comes from the writing-off of non-performing assets in the local banking sector, which have negatively affected profitability in the short term. Import duties continue to perform poorly. 
 
There are minor adjustments to other revenue from companies that have has been struck off the registry whilst still holding assets. These deposits can face legal ownership claims for a period of six years. After the six year period no claim can be entertained and the money passes to the Crown. It is anticipated that the Crown will receive approximately $0.500 million from such assets in 2014/15.
 
Total operating expenditure for 2014/15 remains the same as originally budgeted in the annual budget with no further changes.  There may be some opportunities for savings as the year progresses, and there will be some focus on ensuring savings are returned to the budget.
 
Estimated Underlying Budget Balance 2015/16 to 2017/18
Recent adjustments, along with changes in the economic forecasts, have revised the net underlying operating deficit to $0.316 million in 2015/16, $3.3 million in 2016/17 and $0.602 million deficit in 2017/18. 
 
The development of the 2015/16 Budget will be undertaken in a tight fiscal environment, with limited fiscal space for new initiatives.  Therefore, Crown expenditures will be monitored closely.
 
Future policy objectives will need to be pursued within the established principles in the fiscal responsibility ratios. The ratios establish the long term parameters for fiscal management and ongoing Budget development, with a focus on the level of expenditure on Crown debt. Broadly, the fiscal performance of the Cook Islands against the fiscal responsibility ratios has been good.  
 
Economic Update 
Since the 2014/15 Budget, total tourism arrivals for September to November performed as expected however the composition was not in line with forecasts. Tourist arrivals have been revised down from those forecasts at the 2014/15 Budget due to lower than anticipated Australian arrivals. 
 
There has also been a revision to the 2013/14 GDP annual figure due to the inclusion of the March and June quarterly data for 2014. As this does not affect the revenue estimates (the 2014/15 tax receipts were forecast using the 2013/14 estimated revenue), the revision will only have implications for GDP ratios. 
 
Nominal GDP (which includes inflation) is now estimated to have fallen by 2.0 per cent in 2013/14, due to large falls in construction activity and the provision of financial services. This is a downward revision from the forecast of 2.6 per cent growth forecast at the time of the 2014/15 Budget. Nominal growth is expected to be an estimated 4.8 per cent in 2014/15, due largely to increased public sector capital investment.
 
Apart from the revisions made above, there were limited to no changes to the remaining economic indicators since the publishing of the 2014/15 Budget Estimates. 
 

PRESS RELEASE - Cook Islands to Investigate the Feasibility of BCI Joining New Zealand Payments System

Cook Islands to Investigate the Feasibility of BCI Joining New Zealand Payments System

Minister of Finance, the Honourable Mark Brown has outlined steps to build on findings from the independent banking review prepared by Sam Knowles in 2012 which outlined that banking in the Cook Islands was at a cross roads and in major need of change.

In his report, Mr Knowles outlined that business customers set their benchmark for the banks by their experience in their banking relationships and functionality in New Zealand. One of the major differences between the countries was the manual payments system which underpinned the domestic banking system in the Cook Islands.

Minister Brown outlined that there was a need to introduce a cost effective way of modernising the payments system in the Cook Islands,

“The current system does need to change for the benefit of the Cook Islands economy.  I have spoken to many businesses in the country and they have to adopt a dual banking model which includes having accounts at all three of the local banks so they can make payments direct to the customers of those banks as well as an account with a New Zealand based bank, so that if they directly purchase services or supplies from New Zealand, they can use that account via internet banking as their primary business account.”

Minister Brown announced that he would be assembling a team consisting of the Financial Secretary, the CEO of the BCI and the Financial Supervisory Commissioner Paul Heckles to commence a process of assessing the feasibility of BCI joining the New Zealand Payments system.

In November, the Financial Secretary, the Chair, CEO and an Independent Specialist Banking Director of the Bank of the Cook Islands (BCI) attended and presented to the PaymentsNZ conference.   During this time there has been a consensus emerging that there is a possibility that the Cook Islands could move to the New Zealand Payments System in a very similar way to what Niue has done.

Minister Brown outlined that “electronic settlements and internet banking have revolutionised the way modern banking is done, creating a major gain in economic productivity. Unfortunately for us this has failed to materialise in the Cook Islands where banks still run on a predominantly manual system especially when effecting customer instructions across banks.”.”

Chair of the BCI, Jessie Sword outlined that the BCI wanted to become more competitive and drive the cost of banking down, “I was impressed with the opportunities that could present themselves at the PaymentsNZ conference, and look forward to seeing what can be done to introduce a more automated system into the Cook Islands.”

The team established by the Minister will look into the feasibility of BCI joining the New Zealand payments system, and report back to Cabinet in the first quarter of 2015.

[END]

Development Awards Launched

The Minister of Finance – Mark Brown – is calling for nominations for a series of special awards to celebrate 50 years of development next year.

The winners of the awards will be announced at an awards dinner with the country’s Development Partners during the Development Partners Meeting in February next year.

The awards and the Development Partners meeting will be one of the many special events taking place next year to celebrate half a century of self-government in the Cook Islands.

There are 7 categories in the awards, they are:

Five Best Decade Development Awards for each of the decades for 1965-2014; Supreme development 1965 – 2015, and a People’s Choice award.

“The 2015 Development Awards will recognise the country's best development achievements over the last fifty years. These awards will honour organisations, individuals and the public and private sector for their efforts in creating positive change in the Cook Islands” Minister Brown said.

The nomination form can be downloaded by clicking here or can be collected from the Development Coordination Division offices.

Winners will be recognised at 2015 Development Partner’s Meeting Awards Dinner on Tuesday 10th February 2015.

Media enquiries to: This email address is being protected from spambots. You need JavaScript enabled to view it.    +682 29 521 

Additional Notes:

Over the last four years the government has hosted an annual meeting to allow Cook Islands government, civil society and private sector development partners, to meet and mix with international development partners.

The big meeting will be centred on the National Auditorium and the pa enua hostels with various meetings and functions being spread around the auditorium precinct, again generating a picture of the many facets of Cook Islands life with the auditorium representing Rarotonga and the hostels their sister island homes.

The meeting will be held between the 9th and 13th of February next year; the visit to Mitiaro will be on the 12th of February with an overnight stay.

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