Reviving the economy: Fiscal Review Committee recommends 12.5-15pc VAT increase

THE Fiscal Review Committee has recommended that Value Added Tax (VAT) be increased between 12.5 per cent and 15 per cent with no zero-rating on essential items and that corporate tax be increased to 25 per cent, with some relief for corporate small to medium enterprises.

The Committee states an increase in VAT will rake in $370 to $630 million to Government.

And to cushion the impact of the VAT hike on Fijians, the Committee recommends a 20 per cent increase in social welfare payments and direct targeted assistance be considered by Government to a tune of $130 million annually.

The Committee states if VAT is increased above 12.5 per cent, about $200 million can be set aside for capital expenditure and health.

“A unified rate of VAT (that is, no zero-rating on essential items), not greater than 15 per cent,” the Committee said.

“The Committee has used 14 per cent for illustrative purposes but the final rate is a matter of Government policy.

“The VAT increase should be introduced in one step. If zero-rating is maintained, then the Government has to strongly consider narrowing down the list of essential items, reducing or eliminating the increased social support and income support targeted transfer payments.

“The Committee recommends the increased VAT rate should take effect from January 1, 2024 to allow businesses and consumers to prepare adequately and for the Government to put targeted assistance delivery mechanisms in place.

“To compensate for the increase to a single unified VAT rate, targeted income assistance to social welfare recipients (20 per cent increase) and lower-income households in the form of periodic cash payments.

“Assuming a 14 per cent VAT rate, payments of at least $1000 per year could be comfortably funded.

“Moving forward with the new VAT Bill with specific attention to be given to tapping new sources of VAT revenue from digital services and e-commerce.

“The Committee states $70 million will be earned from increasing corporate tax from 20 to 25 per cent.

“Increasing departure tax to $150 and then $200 by 2025 will bring in $75m to government.”

The Committee states $100m extra can be earned from increasing customs and excise revenue on near or pre-COVID rates of duty on items, including alcohol.

“This can only be achieved with strong Government leadership, both in communicating clearly with the people in our current difficult position; and in the next 12 months developing, in consultation with the people, a national vision and medium and long term economic plans which set, among other things, fiscal targets against which Government’s fiscal management can be measured.”