Minister for Finance Biman Prasad explained yesterday that reducing Value Added Tax (VAT) from 15 per cent to nine per cent would result in a $600 million revenue loss for Fiji. Speaking in Parliament, Mr. Prasad emphasized that such a reduction was currently not feasible.
“If we reduce VAT from 15 to nine per cent, we will lose $600 million in revenue,” Mr. Prasad stated. “For every one per cent 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 come here and say that we should reduce VAT without saying how we fix the revenue gap.”
He noted that members of the Opposition seemed to overlook the fact that when they were previously in government, VAT was also set at 15 per cent with no exemptions.
“When we increased VAT from nine per cent to 15 per cent in the last budget, we conducted a thorough analysis, explored different options, consulted with various experts, and discussed it with our multilateral partners,” Mr. 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 have increased due to rising production costs or other related costs such as freight, insurance, storage, etc., which are completely out of our control.”
He added that the government has been examining different options to provide relief to the public. The Minister for Trade, who oversees the Fiji Competition and Consumer Commission (FCCC), is consistently evaluating how policies and tools can be employed for this purpose. Mr. Prasad indicated that decisions on these matters would be announced soon by the Deputy Prime Minister.
Mr. Prasad also highlighted that Fiji’s major trade partners are facing high inflation rates, which affect import prices due to trade links, thereby impacting Fiji significantly.
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