Analysis:

The $3.67 billion National Budget is more than a stimulus package.

It sets the foundation for our economic recovery in the face of the continuing threat by COVID-19.

Attorney-General and Minister for Economy Aiyaz Sayed-Khaiyum referred to it as a new normal.

This is a broad-based Budget that should appeal to all sectors of the economy. There is something in it for everyone and confounds critics who have been unrealistic in their expectations of what Government can do without realising the serious long term implications of their proposals.

There is no magic wand to solve all our economic challenges brought about by COVID-19. It requires a carefully thought-out Budget that not only addresses the present but takes stock of the future.

This Budget has ticked all the important and relevant boxes. The future is unknown and we can only deal with what we know now and future projections. The element of uncertainty is real and we must always take cognizance of it. Things could change for the better or for the worse. God forbid that it takes a turn for the worst.

This Budget gives us that buoyance, a space to breath and clarity to move forward with purpose and resolve. It empowers Fijians to fight back and rebuild their lives and the economy because there really is no other way.

Mr Sayed-Khaiyum has admirably set the tone and created the environment for Fijians to not only survive but prosper even if it means small steps.

It’s the characteristic Fijian spirit of never give up, of resilience and of love and compassion for our fellow citizens that will unite us as we journey together into an uncertain future. There are things we can control and others we can’t. We can take control of our domestic situation but we are at the mercy of global events whether they are caused by climate change or COVID-19. This twin threat will continue to threaten us and as Mr Sayed-Khaiyum has alluded to, it is now inextricably linked to economic planning and the formulation of the National Budget.

The positive response to the Budget from industry leaders and the financial sector comes as no surprise. The Budget is being described as timely and fits the solution to the immediate needs of the nation.

Tourism gets a much-needed boost with tax cuts that would make the industry more competitive and attract more tourists from overseas when the border reopens. The measures also make the hotels more attractive to locals as part of the buy local campaign. New Zealand which has been encouraging its citizens to spend locally is experiencing a sudden rise in tourism activity. Ski fields and accommodation facilities are doing brisk business. Rotorua, one of NZ’s key tourism destinations, has got its hotels and motels all booked out this weekend by Kiwis. This can happen here when our people have disposal Income.

Some of the highlights of this Budget pointed out by independent experts include the following:

1) The stimulus package will get those laid-off hotel workers re-employed

2) Relief for the redundant workers

3) Sustainable Government initiatives will stimulate investment and consumption

4) Unprecedented tax cuts will stimulate economic development particularly in tourism

5) Changes in tax laws will improve the ease of doing business. This has been a major issue for the business community and representations had been made to the Government.

6) The reduction or removal of fiscal and import excise duties over 1,600 items.

7) Removal of stamp duty

8) Strategic cuts in spending to reduce government expenditure.

9) Government has cut the salaries of permanent secretaries and chief executive officers of statutory organizations by 10 per cent. The rest of the civil servants escape any cuts.

9) Planned infrastructure and construction projects to boost private sector investment will go ahead.

10) Income tax exemption will be available on developer profits for proceeds of the sale.

11) The new Incentive Package for Sub-division of lots will be applicable from 1 August 2020 to 31 July 2022.

12) Capital Gains Tax exemption threshold for capital gains made by a resident individual or Fijian citizen will be increased from $16,000 to $30,000.

A tax deduction will be allowed to the employer for Fringe Benefit. Consequently, Section 22 of the Income Tax Act will be amended.

Section 10 will be amended to exclude accommodation provided or reimbursed, airfare, transport and allowances from the application of Non-Resident Withholding Tax.

13) The Permanent Establishment Rules will be amended to allow a consistent application with international taxation rules.

14) A new incentive package will be introduced for private companies investing in buildings to be used by the Government or entities approved by the Government.

– The following benefits will be available:

– Duty concession will be available on the importation of raw materials, plant, machinery and equipment for the establishment of the project.

15) Residential Housing Development Incentive – Development of Housing for Public Rental

νRegulation 12, Part 3 of the Income Tax (Residential Housing Development Package) Regulations 2016 will be extended to include duty concessions for the importation of raw materials, machinery and equipment for the establishment of the housing project.

16) To support post-COVID-19 recovery through the provision of additional avenues for corporate financing, the issuance of corporate bonds will be incentivized as follows:

– A 150% tax deduction will be allowed to companies for a listing of corporate bonds with the South Pacific Stock Exchange (SPSE). This deduction will be applied on the cost of listing.

– A 150% tax deduction will be allowed on interest paid on corporate bonds.

– Interest income earned on corporate bonds will be exempt from tax.

16) To provide immediate financial support to employers during this time of financial hardship, the mandatory FNPF contribution was reduced to 5 percent in the COVID-19 Response Budget. This policy is further extended until 31 December 2021.

– Employer contribution exceeding the 5% mandatory FNPF contribution and up until 10%, will be allowed a tax deduction of 150% of the excess.

– The deduction will be applied retrospectively from 1 April 2020.

17) Depreciable Assets will now be taxed under CGT rules and not income tax rules

– Therefore, the definition of Capital Asset in Section 2 of the Income Tax Act 2015 will be extended to include depreciable assets and section 34 will be amended to clarify rules on disposal of depreciable assets.

18) Tax deduction to hire local artists

– Tax Administration Act

A 150% tax deduction will be allowed to hotels and resorts that hire local artists such as craftsmen, dancers and musicians.

19) Tax deduction on loans taken for medical purposes.

– A tax deduction will be allowed on a loan (inclusive of both principal amount and interest accrued) taken from a licensed financial institution for medical treatment.

– The applicant will be required to provide a medical certificate, details of the loan facility and receipts to confirm expenses.

– The following expenses are eligible:

– hospital expenses;

– food and accommodation if part of the package with the hospital;

– International airfares; and

– interest expenses incurred with the loan (in case of a consolidated loan), interest deduction will be allowed proportionately.

20) Deferral rules for the company incorporation will be introduced.

– Transfer of assets by an individual shareholder to a company at the point of incorporation will not be subject to tax.

νSubsequently, disposal of assets will be subject to normal tax.

21) Donation to the Sports Fund

– The threshold to qualify for the 150% tax deduction available for donations to the Sports Fund will be removed.

– The recipient of the donation must be registered with the Fiji National Sports Commission.

22) Audit Penalty

– 300% VAT evasion penalty and 75% income tax audit penalty will be replaced with a low, harmonized and progressive audit penalty regime.

– Audit penalty rates for tax shortfall for Income Tax, VAT and Other Taxes will be 15% per annum and will be computed using the simple interest formula. The same rate and methodology will be applied for tax benefits obtained through overestimation of tax losses.

23) Review of Airport Departure Tax

– The Airport Departure Tax will be reduced from $200 to $100.

The list goes on. Despite all the pressures that Mr Sayed-Khaiyum faced leading up to Budget night on Friday he has done a remarkable job under extremely difficult circumstances.
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