Challenges and Consequences: The Debate on Reducing Value Added Tax

The Minister for Finance, Biman Prasad, stated yesterday that lowering the Value Added Tax (VAT) from 15 percent to nine percent would result in a $600 million revenue loss for Fiji.

During his parliamentary address, Mr. Prasad emphasized that reducing VAT was currently not feasible.

“If we reduce VAT from 15 to nine percent, we will lose $600 million in revenue,” he reiterated.

“For every one percent reduction in VAT, approximately $100 million in tax revenue is lost. The critical question is, how do we offset this loss? Should we increase the fiscal deficit to double digits and secure a $600 million loan, or cut expenditure by the same amount? It’s easy for critics to propose lowering VAT without addressing how to cover the revenue shortfall.”

Mr. Prasad pointed out that opposition members had previously overseen a 15 percent VAT rate with no exemptions during their time in government.

“Increasing VAT from nine percent to 15 percent in the last budget involved thorough analysis, exploration of various options, expert consultations, and discussions with multilateral partners. It was a challenging decision, so we had to ensure it was correct,” Mr. Prasad explained.

“Despite the absence of VAT on 22 items, prices have risen due to higher production costs and other factors like freight, insurance, and storage, which are beyond our control.”

He added that the government is exploring various tools and policies to provide relief, with the Minister for Trade and the Fijian Competition and Consumer Commission (FCCC) actively working on potential solutions.

Mr. Prasad also highlighted that Fiji’s major trading partners are experiencing high inflation rates, which, due to trade links, elevate import prices and significantly affect Fiji.


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