Minister for Finance Biman Prasad stated yesterday that reducing the Value Added Tax (VAT) from 15 percent to nine percent would result in a $600 million revenue loss for Fiji.
Delivering his right of reply in Parliament, Prasad said lowering VAT was not currently an option.
“If we reduce VAT from 15 to nine percent, we will lose $600 million in revenue,” Prasad said. “For every one percent reduction in VAT, we lose about $100 million in tax revenue. The question is, how are we going to compensate for this? Are we going to increase the fiscal deficit to double digits and get $600 million in loans? Or are we going to reduce expenditure by $600 million? It is easy for them to say that we should reduce VAT without saying how we fix the revenue gap.”
Prasad pointed out that Opposition Members of Parliament had imposed a 15 percent VAT with no exemptions when they were in government.
“When we increased VAT from nine percent to 15 percent in the last budget, we did a thorough analysis, explored different options, consulted with various experts, and discussed it with our multilateral partners,” Prasad said. “We knew it was not an easy decision, so we had to get it right. Despite the fact that there is no VAT on 22 items, prices increased due to higher production costs or other associated costs such as freight, insurance, and storage, which are out of our control.”
He further noted that the Government has considered all options, and the Minister for Trade is constantly looking at policies to provide relief to the people. Prasad mentioned that the Deputy Prime Minister would soon be making some decisions in this regard.
Prasad explained that Fiji’s major trade partners are experiencing high inflation rates, affecting import prices and significantly impacting Fiji.