The Solomon Islands Chamber of Commerce & Industry (SICCI), being the peak organization representing private sector businesses strongly calls on the government to “do something now” on the skyrocketing fuel price, and a general cost of living crisis.
SICCI made the call following the recent hike in fuel price in the country which is likely to have an adverse impact on businesses and households in the next three to six months.
According to an analysis of the increase of fuel price by the Central Bank of Solomon Islands (CBSI), the steep price increases were seen in ‘Tapis oil’ price, the main imported fuel for Solomon Islands. The analysis has it that, the average monthly retail fuel price in Honiara has increased from SBD$9.66 per litre in January 2022, to SBD$10.94 per litre in March and climbing to SBD$12.30 per litre in April, an increase of SBD$2.64 within a span of only three months, the highest increase the country has ever experienced.
In terms of Tax, fuel excise in Solomon Islands is 15% GST on every litre of fuel purchased. In addition to 15% GST, the Fuel Wholesalers in Solomon Islands pay taxes for Sales of 10cents per Litre (used to be a levy for road users charged at service stations, now shifted to fuel wholesalers, paid for by everyone), Duty of 50 cents, Pipeline levy of $0.0275 per Litre (charged by SIPA) contributing to the current fuel increase price at Service Station Operators, that is being experienced in this month of April 2022. For other businesses indirectly, cost of fuel increases is in the form of high electricity costs especially in terms of power tariffs processes. Solomon Islands is a net importer of oil, therefore, unless non-oil imports fall, an increase in oil prices will result in a wider current account deficit, which indicates higher net foreign debt and lower consumption.
From a business perspective, Solomon Islands is one of the countries in the Pacific that has high cost in operating and sustaining a business, higher fuel prices will, indirectly have effect on the raise in the prices of goods and services with regards to higher production costs to make profit.
High fuel price will not only have effect on the business communities but it will have trickling effect reaching household, who will bear the brunt of the higher price pressure impacting budgets and affecting purchases power regardless of their income group.
COVID-19 pressures are already upon the business communities and the country as whole, high fuel price increases intensify socio-economic pressures faced by households pushing them towards the poverty line and business to reducing investments or operation and employment as a result of lower profitability.
Fuel is key to determining cost of electricity in Solomon Islands, and a majority of businesses rely on electricity for their operations. The latest electricity Tariff charges for April, shows fuel tariff increased by 7% to $3.09/kwh from $2.88/kwh in March and a 46% surge against the same period in 2021, reflecting the increase in global oil price as a result from the war in Russia-Ukraine, translating to immediate higher electricity tariff charges borne by domestic users.
To help curb these impacts, SICCI is recommending the following temporary measures to be taken into considerations.
- Review a possible reduction of tax charges for Sales of 10cents per Litre (used to be a levy for road users charged at service stations, now shifted to fuel wholesalers, paid for by everyone), Duty of 50 cents/litre, Pipeline levy of $0.0275 per Litre (charged by SIPA). The reduction of the above costs can be recovered on the higher GST charge of 15% because GST is added after all the other taxes are added.
- Reduction of tax charges for Sales should be imposed possibly for 3 months or 6month. Hence, monitoring of fuel prices to be monitored by identified stakeholders in order to advise government when the price of fuel is sufficiently low to fully restore taxes with regards to Sales and Duty.
- Government to consider the use of Stimulus Package to counter the short fall in revenue or seek funding assistance from donor partners if exemptions are given on fuel.
With the current COVID-19 impacts on businesses together with the recent surge in fuel prices, SICCI remains vigilant on issues pertaining the livelihood of businesses going forward.