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Expert Warns Against NFP’s VAT Policies

Expert Warns Against NFP’s VAT Policies
Fiji Revenue and Customs Service board chairperson Ajith Kodagoda and Amalgamated Telecom Holdings Group (ATH) chairman, Ajith Kodagoda.
November 09
12:13 2018

Fiji Revenue and Customs Service board chairperson Ajith Kodagoda has forewarned that the removal of Value Added Tax (VAT) on selected items will leave the door wide open for fraud.

He says it will end up not benefitting any Fijians.

In a statement released last night, Mr Kodagoda, who was instrumental in turning around the FRCS performance under his watch, has reminded Fijians that the National Federation Party’s plans to make some items zero rated would be chaotic.

“When Government reduced the VAT from 15 per cent to 9 per cent in 2016 and at the same time imposed VAT on the six zero rated items it created simplicity in the taxation system. This translated in significant savings in the cost associated with compliance resulting in the reduction of fraud.

“Based on experience, the zero rated VAT creates a loophole for merchants to manipulate their VAT returns to their advantage. They were not transferring the VAT collected to FRCS by stating higher sales for the zero rated items than the actual sales.

“Fiji has already had very bad experiences with VAT fraud due to zero rated supplies in the past. In one of the biggest tax fraud case in Fijian history, more than $63million was stolen through VAT manipulations by just one single supermarket. There have been many other cases where millions have been lost from traders who manipulated the VAT system due to zero rated supplies.”

FRCS, he said, would end up using more resources in compliance.

“With the proposed zero-rated VAT items to 23 by National Federation Party, the probability of fraud increasing rises proportionately. In addition, FRCS would need to spend more resources on compliance. With our past experiences, it is clear that the real beneficiaries of VAT zero rating are unscrupulous traders and fraudsters – and not necessarily low income consumers. While a few consumers may save a few dollars, the country will lose millions, thereby reducing Government’s ability to use these monies to provide essential services to ordinary Fijians.

“Another serious challenge is that the 23 zero rated VAT items announced poses more ambiguity rather than simplicity.  For example, school bags will be zero rated, however, there are various bags which are used as school bags as well as for other purposes which could also be open to further manipulation. Will Nike and Addidas bags which are used for multiple purposes, including as school bags be VAT free? Similarly, it would be an administrative nightmare detecting which shoes are “school shoes”. It will lead to more fraud and manipulation.

“Another example is rice. Will premium basmati rice be VAT free, which brand and type of rice would be VAT free? What about par boiled rice and other alternative rice for those who have dietary requirements?

“The zero rating of VAT on canned tuna, fish and other items also has potential to kill the local manufacturers directly competing with these products.

“The reduction of duty on imported noodles, biscuits and milk will have a negative impact on the production level of similar local products which would result in job losses especially with regard to factories producing biscuits, noodles as well as the dairy farmers who will have to directly compete with the competitive prices of imported milk. The government will also lose out on corporate tax collection from these factories.

“Lastly, internal estimates by FRCS reveal that with the proposed zero rated VAT, reduction in domestic & import duties and removal of ECAL will result in approximately $500 million loss in Government revenue.”

Edited by Naisa Koroi

Feedback: jyotip@fijisun.com.fj

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