Single VAT rate vital

Dr Neelesh Gounder during an interview with The Fiji Times in Suva this week. Picture: JONACANI LALAKOBAU

FROM an economic perspective, it’s efficient to have a single VAT rate, says University of the South Pacific (USP) senior lecturer in economics Dr Neelesh Gounder.

Speaking on The Fiji Times’ online news platform The Lens@177 this week, Dr Gounder said having such a system would also ensure the collection was relatively easy.

“Efficiency is one of those principles of any taxation system,” he said.

“So, VAT is a consumption-based tax, which means at the end of the day, the tax will be paid by those who buy the goods and services, which is the consumers in this case.”

Dr Gounder also stated that if the tax rate went up, it would mean the cost of goods and services the consumers use would also increase.

“Now, we have three rates of VAT, zero-rated on some essential items, then there’s 9 per cent and then there’s 15 per cent.

“Having a single rate is important in terms of efficiency.

“But Government’s also mindful of the impact of taxes on households, particularly low-income earners, or what we call is the social impact on households.”

Dr Gounder said in terms of revenue, VAT was one of the major taxes now, which brought in revenue for the Government.

Thus, the Government had to decide how it balanced the revenue it collected through VAT and the subsequent impact on households.

“Given the debt scenario, unless the economy grows fast, say at a rate of higher than around 7 to 8 per cent of GDP, it will be basically impossible to reduce the current debt to GDP ratio.

“This means the challenges will remain and the lack of fiscal space will remain a challenge for the Government.”

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