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EDITORIAL: Targeted VAT Rule Makes Economic Sense

We currently have a number of VAT exempt items in our supermarkets with low prices targeted for those at the bottom end of the socio-economic scale. These basic items range
28 Sep 2015 09:44
EDITORIAL: Targeted VAT Rule Makes Economic Sense

We currently have a number of VAT exempt items in our supermarkets with low prices targeted for those at the bottom end of the socio-economic scale.

These basic items range from powdered milk to tea, flour, cooking oil, rice and tinned fish.

But while Government’s intention is to provide these basic items at minimum cost to the poor, a fact also remains that the rich also take advantage of the VAT exemption.

As the Minister for Finance and acting Prime Minister, Aiyaz Sayed-Khaiyum, aptly pointed out that through this, Government was indeed losing out on revenue.

This was given that those who were not the intended beneficiaries of the VAT exemption, were also benefitting by paying zero VAT.

Mr Sayed-Khaiyum, whilst addressing the business community at the Budget Forum last Saturday, stressed this was regressive taxation system because most of those forming the business community could afford to pay tax and VAT, but were not paying for these items.

“You are not the targeted audience. So a person who is earning $250,000 is also not paying VAT for tea, powdered milk, flour, rice – you should be paying VAT,” he has stressed.

The challenge now for Government is to fix up the system to make it more specifically-targeted whilst at the same time generate revenue for the Government.

Mr Sayed-Khaiyum’s comments come as the Ministry of Finance now has just a little over a month before the 2016 National Budget announcement.

Therefore, it would not come as a surprise if such a targeted approach was indeed included in the budget.

A few examples of such targeted approach has already been set by Government in the past Budgets.

The free medical scheme is one of the best examples where it is not applicable to just anybody.

Those earning below $20,000 individually will have access to free medicine. The card for the scheme is issued following presentation of all salary evidences and a rigorous process.

Another example of course is free water for households who earn less than $30,000.

For these people, Government gives 90,250 litres of free water a year.

And yet another example is electricity subsidy.

For households that use 85kW of electricity or less, Government subsidises 50 per cent of that.

So for example instead of paying 34 cents, you pay 17 cents and Government pays 17 cents.

Mr Sayed-Khaiyum rightfully pointed out that this is a more targeted and specific approach and makes good economics and is good financial sense.

These examples demonstrate that the system can be specifically applied to the people who it is supposed to go to.

Currently, revenue is being lost from those who are rich enough to pay VAT on the VAT-exempt grocery items.

In fact, this is not just revenue lost for Government, but Government’s ability to help those who need assistance directly.

More revenue for Government will mean money can be allocated in other sectors of the community where those at the bottom end of the socio-economic scale need it more.

So such critical thinking and decisive planning in the 2016 National Budget could lead to more assistance for those living below the threshold.

 

Feedback:  rachna.lal@fijisun.com.fj

 


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