A single value added tax (VAT) rate of 12 per cent will earn Government $1 billion, a single rate of 12.5 per cent will rake in $1.2b, $1.4b will come in with a unified single rate of 14 per cent while a rate of 15 per cent will bring in $1.5b.
This, according to the Fiscal Review Committee in its recently published report.
The committee said any increase in VAT should come into effect from January 1, 2024, and it also recommended that Government should roll out increased social welfare payments to Fijians before the new VAT rate was imposed.
“That is a deliberately long lead time,” the committee said.
“The committee believes it is appropriate because it allows everyone time to understand and accept this significant shift through awareness and widespread communication.
“Consumers should have sufficient time to prepare for additional costs; businesses can adequately prepare their systems; and Government can prepare the necessary groundwork on delivery systems for targeted assistance (and perhaps even deliver the first tranche of assistance before the VAT increases come into effect for a more positive impact on the general population).
“The long lead time may attract some criticism because it might allow those with money the flexibility to make high-value purchases before the year ends.
“People will prefer to buy goods at 9 per cent rather than 14 per cent VAT.
“However, there is a limit to how much consumers can ‘stock up’ before VAT increases occur and this is, in the long term, not a major consideration with the more positive outcomes expected.
“From the viewpoint of sustainable revenue, Government needs the money now, even if it does not have the capacity to spend all of it in short order (particularly on infrastructure, which will take time to plan, design and procure).
“From the viewpoint of predictability and transparency, if increases are to be introduced progressively, they should be signalled clearly at the beginning. Today’s politics can cast doubt on tomorrow’s promises — so there may be a confidence gap in the Government’s ability to deliver progressive increases of VAT (which may be unpopular).”
