14% VAT rate is the most sustainable - Fiscal Review Committee

The Fiscal Review Committee has recommended a unified rate of VAT where there is no zero-rating on essential items and it is not greater than 15 percent. They say revenue loss from zero-rating on essential items (that is instead of 9 percent) was significant, at around $160 million per year as estimated by the Fiji Revenue and Custom Services.

The Report says this revenue, no longer available to Government, was normally used to pay for basic public services and says this is inconsistent with sustainable revenue principles.

They say taking into account the Committee’s preference for not disturbing the tax-free threshold of $30,000 on personal income tax, the Committee believes that 14 percent VAT rate is the most sustainable, resulting in estimated additional potential VAT revenue to Government of $510 million.

The report says this is not revenue that the Government should ignore and it is additional revenue which can fund transfer payments to the poorest in our population.

The Committee in their report says if zero-rating is maintained, then the Government has to strongly consider narrowing down the list of essential items and reducing or eliminating the increased social support and income support targeted transfer payments proposed in this Report reflecting government’s lower potential revenue.

It says to compensate for the increase to a single unified VAT rate, they recommend targeted income assistance to social welfare recipients (20 percent increase) and lower-income households in the form of periodic cash payments.

The report says assuming a 14 percent VAT rate, payments of at least $1,000 per year could be comfortably funded.

They also say there has been public criticism of the Committee’s preliminary view that VAT should increase to a rate not greater than 15 percent.

The report says that is expected and inevitable and critics have the right to raise their concerns as everyone will be impacted and those on lower incomes will be impacted the most. They add however, VAT is the only effective means of raising the significant revenue the government urgently needs to meet its many commitments.

Acting Prime Minister and Minister for Finance, Professor Biman Prasad says the report is a valuable starting point for much of the economic dialogue and engagement the government wishes to promote as they pursue new paths towards better fiscal management and economic growth.