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Fiji Budget 2016: VAT cut and administrative streamlining

The Fijian government released its 2016 Budget on November 6, bringing good news for taxpayers in the form of a VAT cut.

The Budget signals a reduction in the national VAT rate, which will fall from 15% to 9% from January 1 2016, but the cost of basic food items, along with kerosene, tinned fish and certain medicines is set to increase due to their removal from the list of zero-rated supplies.

Aiyaz Sayed-Khaiyum, Fiji’s Attorney General and Minister for Finance, described the VAT reduction as a pro-growth tax policy that will have an expansionary impact on the economy.

“This reduction in VAT will reduce costs to citizens as measured by the Consumer Price Index through the RBF [Reserve Bank of Fiji] by 4.5%, and will reduce the overall price of food to all Fijians,” said Sayed-Khaiyum in parliament. 

The net deficit in Fiji for 2016 is projected to be $285.8 million, with total revenues at $3.13 billion and total expenditure at $3.41 billion.

“The government’s broad fiscal policy remains focused on growing the economy through investment,” Sayed-Khaiyum added. 

The loss of revenue to the government due to the VAT reduction is estimated at $316 million, with the expected recovery of $108.6 million from the full-rate application of VAT on basic foods, $127.5 million from service turnover tax (STT) and the environmental levy, and $120 million from VAT compliance initiatives. This additional tax take of $356 million means that revenues should be expected to rise by $40 million.

The STT is expected to increase from 5% to 10%, with an environmental levy of 6% to be imposed on businesses’ tourism related activity.

“Our constitution guarantees all Fijians the right to a clean environment and this measure reinforces the government’s commitment to guaranteeing that right,” said Sayed-Khaiyum.

Aside from the VAT reform and an authority shift to focus on streamlining administrative processes and broaden the tax base, other measures announced in the Budget speech include a stipulation that public sector tenders will only be awarded to tax compliant bidders and a tax amnesty for 2016.

The amnesty will be available between January 1 2016 and June 30 2016, allowing taxpayers to regularise undisclosed assets. No tax charge or penalty will be imposed, and income streams associated with those assets will be taxable from 2017.

Atish Lala, president of Suva Retailers Association, is generally optimistic about the Budget measures announced, but thinks the government’s decision to increase the credit card levy is a backward step.

"We are now heading towards a more cashless society with internet shopping and EFTPOS [electronic funds transfer at point of sale] availability, the credit card levy that we felt should have been scrapped has in fact been increased from 2% to 3%, further increasing the cost of owning a credit card,” Lala told The Fiji Times

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