Former Prime Minister Mahendra Chaudhry has called on the Government to lower the Value Added Tax (VAT) from the current 15 percent back to its previous rate of 9 percent, arguing that such a move would genuinely help alleviate the increasing cost of living and the resulting hardships that many Fijians are facing. His comments came in response to Finance Minister Prof Biman Prasad’s assertion that there are no immediate solutions to control the ongoing rise in living costs.
Chaudhry contends that the Finance Minister’s decision to raise VAT has been detrimental and has not helped the situation as promised during the election campaign. He claims this policy was a quick fix to rescue the Government from financial woes and public debt challenges but has instead exacerbated the economic struggles for everyday citizens.
He pointed out that the move to raise VAT has led to higher inflation, diminished consumer purchasing power, and has negatively impacted small businesses while slowing down the overall economy. The Reserve Bank recorded inflation at a significant 7.1 percent in April 2024, marking a decade-high, which Chaudhry attributes largely to the VAT increase. He noted that the revenue collected from VAT has fallen short of expectations, further questioning the effectiveness of the tax hike.
Chaudhry criticized claims that the Government’s debt situation has improved, stating that the reported decrease in the debt-to-GDP ratio is misleading and primarily reflects inflation rather than real economic growth. He contended that the increase in VAT disproportionately burdens the less affluent populations and suggested that there are alternative measures the Finance Minister could consider, such as reintroducing the Service Turnover Tax and Stamp Duty, imposing higher import duties on luxury goods, or implementing a progressive income tax system.
Additionally, he recommended that the government eliminate corporate tax exemptions, which could potentially yield an extra $120 million in revenue.
This proposed reduction in VAT could provide a breathing room for Fijians facing financial strain, and coupled with other fiscal measures, it could lead to a more balanced economic recovery. Reducing VAT might not only ease pressure on households, but it could also bolster local businesses by improving consumer spending power. Overall, there is an opportunity for the Government to reassess its tax policies in pursuit of a more sustainable economic future for all Fijians.
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