With the major VAT reduction from 15 per cent to 9 per cent from January 1, many would be wondering how Government would be able to recover the money lost through drop in VAT.

The answer is in the policy mixing involving the VAT reduction, broadening of VAT base by imposing VAT on exempt food items, the increase in Service Turnover Tax to 10 per cent and the introduction of the six per cent Environmental Levy.

Minister for Finance, Aiyaz Sayed-Khaiyum, stated during his 2016 National Budget announcement that this policy mix will not place tax revenues in a precarious position.

In fact, he said the overall impact of these changes is expected to lead to a revenue gain of $38.5 million.

“The VAT rate reduction is a pro-growth tax policy and will have expansionary impact on the economy and the overall revenue gain will be much higher than this,” he said.

He said the VAT rate reduction itself will have a loss of $316 million.

But he said it would be offset by a gain of $108.6 million through VAT on basic food items, $127.5 million from Service Turnover Tax and Environmental Levy, and $120 million from VAT compliance initiatives, particularly through the VAT monitoring system.

Collection aspect

Fiji Revenue and Customs Authority chairman, Ajith Kodagoda, said this was going to mean a big effort by FRCA now to work with the reduced VAT but to meet the revenue target.

He said the announcement was made and it was up to the FRCA team’s hardwork to meet the target.

“Overall Government is bringing down the VAT, but at the same time VAT will be applied for everything,” he said.

“So you will start collecting VAT from that but at the same time, you will have collection from the other things so it will balance it out.”

Budget overall

Meanwhile, holistically speaking, Mr Kodagoda felt it was a budget that focused on those people who needed help.

This was given that it was focussed on people who really need to uplift their living standards.

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