Premila Kumar is incorrect, we did not recommend reduction in personal income tax on people with high taxable incomes - Naidu

Premila Kumar is incorrect, we did not recommend reduction in personal income tax on people with high taxable incomes - Naidu

By Vijay Narayan
Sunday 17/03/2024

The Chair of the Fiscal Review Committee, Richard Naidu stresses that they did not recommend any reductions in personal income tax on people with high taxable incomes.

While responding to Opposition MP Premila Kumar's comments in Parliament last week that the 2023 Fiscal Review Committee had recommended reductions in personal tax rates for high income earners, Naidu made it clear that Kumar is incorrect.

Naidu says the Committee recommended only that the Social Responsibility Tax be abolished and replaced with a new personal income tax bracket for individuals with high taxable incomes (mostly salaried executives, sole proprietors and people in partnerships).

He says this would be at the same marginal tax rate and would simplify the tax system without reducing the total tax paid by those individuals.

Naidu says Kumar can find these recommendations at paragraph 4.43 of the report, on page 56.

However he says the Committee also noted that both the Fiji Revenue and Customs Service and the International Monetary Fund had recommended that the top rates of personal income tax come down.

He says this was partly to do with the distortionary effects of high tax rates.

Naidu says these force up top executive salaries (because top executives want to receive a certain amount of money after tax) and add to business costs, which are passed on to consumers.

He says it appears that Premila Kumar has not read the Fiscal Review Committee’s May 2023 Report.

Naidu says Kumar suggests that the Committee’s recommendations on personal income tax favoured wealthy people at the expense of others.

He says if she read the report, she would see that its recommendations (which included an increase in corporate tax) have the opposite effect.

Naidu says the Fiscal Review Committee is appointed by the Government but is independent of the Government.

He stresses that the Government does not tell the Committee what to say and the Committee does not tell the Government what to do.

The Committee issued a 159-page report in May last year.

The Report made more than 100 recommendations on taxation, Government spending, social protection, cost recovery, improving economic growth and better use of Government assets.

Naidu says the Government accepted some recommendations, rejected some and (they are told) is still considering some.

He adds in the 2023-2024 National Budget, personal income tax rates on the highest incomes were slightly reduced but this was not on the recommendation of the Committee.

The Committee also noted (at paragraph 4.38 at page 55) that many business people who owned companies could receive low salaries (on low rates of tax) but receive additional income in tax-free dividends.

The Committee did not consider this situation fair or equitable.

Naidu says it means that many company owners earning high incomes can use a company structure to pay less tax.

The Committee accordingly recommended (at paragraphs 4.43 and 4.55) a simple tax on dividends to close this gap.

Naidu says in his June 2023 Budget address, the Minister for Finance said that the Government would look at a dividend tax in the 2024-2025 National Budget.

He says Premila Kumar is welcome to contact the Fiscal Review Committee members or the Committee secretariat to clarify these matters.

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