Who really pays? An accountant's reading of Fiji's new Tourism Services Tax

The Fijian Government has decided to impose a temporary 'Tourism Services Tax' to help Fiji Airways cope with the heavy pressure of rising fuel prices.

This step links Fiji's rapidly growing tourism industry to the financial stability of its national airline.

The announcement was made during the national budget speech on 26 June 2026. This tax will apply from 1 September 2026 to hotels, tour operators, and cruise companies with an annual turnover exceeding $2 million. It is estimated that this new tax, in addition to the already applicable 12.5% VAT on tourism services, will generate approximately $70 million. 

Why It Matters?

Fiji Airways brings in passengers who contribute to the industry that earned $2.81 billion in 2025. Hence, the problems of the national airline are not just an aviation issue, but also a problem for the income generated from tourism.

The government is facing a financial pinch, as public debt (government borrowing) is approximately 80.9% of GDP, which hinders options for direct assistance from the government budget.

So, in principle, there is a reasoning behind imposing a tax on tourism to fund the necessary connectivity for tourism: it follows the principle of ‘the beneficiary pays’.

Considering this logic, it is important to understand the accounting rather than deeming it entirely good or bad. To understand everything, there are some fundamental questions to answer:

The First Question: Who Actually Pays? The officials in Fiji dispute with the answer. Permanent Secretary for Finance Mr Shiri Goundar says the tax will be absorbed by the tourism industry, not imposed on to visitors.

The Fiji Hotel and Tourism Association says the contrary, cautioning that absorbing it is commercially unsustainable and that most operators will pass it on in full to the visitors. Now in this condition, both cannot be right. Either the tax reduces margins, wages and reinvestment inside the industry, or it raises the price a visitor pays and dilutes Fiji's competitive position.

There is no third place for the money to go.

The Second Question: Turnover, Not Profit. A hotel with $10 million turnover pays $500,000 regardless of whether it made profit. On a healthy 15% net margin (remember this is a high profit margin for Fiji), it is roughly a third of profit. On a 5% margin, it is the entire of profit. A turnover tax cannot distinguish a prosperous resort from a struggling one, and locally owned, thinner-margin operators, exactly those with the least capacity to absorb a shock, carry a disproportionate share of it.

The Third Question: Liquidity or Structural Fix? Seventy million dollars over twelve months covers less than half of a single quarter's $150 million fuel increase. This is a liquidity measure. Whether it is the right method depends on whether Fiji Airways' problem is temporary cash timing or a structural one involving routes, fleet and capital structure. Mr Goundar's own call to reconsider the airline's Sofitel investment and re-evaluate routes and fleet strategy points toward the latter, and a twelve-month levy is a weak tool for a structural problem.

How Fiji Now Compares: Stack the 5% Tourism Services Tax on the 12.5% VAT and qualifying tourism transactions carry a 17.5% ad valorem load, before the $200 departure tax.

Fiji's direct South Pacific competitors sit lower and simpler: Vanuatu charges 15% VAT with no separate tourism levy, and Samoa charges 15% VAGST with no separate tourism levy, undercutting Fiji's new combined rate by 2.5% with nothing stacked on top. Bali has charged foreign visitors a flat one-off levy of IDR150,000, about US$10, since February 2024, and Thailand is introducing a flat 300-baht, about US$9, one-off entry fee for air arrivals in 2026.

Both are immaterial against a week-long holiday bill because they do not scale with spend, unlike Fiji's levy, which compounds with every room-night, meal and excursion booked. The Maldives is the exception: a Green Tax of US$12 per person per night at resorts plus a 17% Tourism GST is a heavier nominal tax architecture than Fiji's.

But the Maldives sells an ultra-premium, price-inelastic product to a different visitor. Fiji's core markets, Australian and New Zealand family and value travellers, are noticeably more price sensitive. Carrying Maldives-level tax exposure on a Bali or Vanuatu level price-sensitive customer base is the mismatch that an accountant should flag.

Consequential Impacts on Fijian Tourism: There are three mismatches which must be considered. First, wholesalers who price Australian and New Zealand package holidays months in advance can shift allocation toward Southeast Asia if the tax is passed through in full.

Second, because the levy taxes turnover rather than profit, the shock lands unevenly inside Fiji's own industry: smaller, locally owned operators just above the $2 million threshold absorb proportionally more than large international-branded resorts with greater pricing power and hedging capacity, opening a competitiveness gap inside Fiji as much as against its overseas rivals.

Third, the deeper risk is not the 5% rate in isolation, but where it now sits in the regional stack. A visitor or travel agent comparing Fiji's 17.5% tax load against a Pacific alternative at 15% with no surcharge, or a Southeast Asian alternative with a flat fee under US$10, is making a comparison Government does not control and the levy makes less favourable to Fiji.

The Bottom Line: Whether this measure costs Fiji market share turns on one variable no spreadsheet can supply: how price sensitive the visitor actually is.

If demand is inelastic, the tax is absorbed largely inside the industry, and the intended $70 million reaches Fiji Airways with limited leakage to arrivals.

If demand is elastic, and Fiji's mid-market family visitor base gives real reason to think it partly is, part of that $70 million will not show up as tax collected. It will show up as bookings diverted to destinations that never had to ask the question.

The Verdict: On the evidence, the Tourism Services Tax is defensible as an emergency bridge and indefensible as anything else.

A beneficiary-pays tax that funds the connectivity the sector depends on is a legitimate instrument when the alternative is a weakened national carrier costing the economy far more than $70 million. But a bridge is only a bridge if it ends. Government should hold firmly to the twelve-month sunset, publish Fiji Airways' route-level profitability before any renewal is considered.

Also a serious weight to the industry's own proposal to convert contributions into equity must be considered, so operators gain a claim on recovery rather than absorb a one-way cost.

Renewing this tax as a permanent feature of Fiji's tax code without that evidence would turn a temporary response to a fuel shock into a permanent handicap against every lower tax competitor. That is the line this policy must not cross, and it is the standard by which it should be judged when the twelve months are up.

Dr. Shukla is a Lecturer in Accounting at the Graduate School of Business at the University of the South Pacific, and the opinions presented above do not reflect his employer but rather his own.