Fiji's New Government Delivers Tax Cuts

by Mary Swire, Tax-News.com, Hong Kong

14 November 2001

Fiji's new nationalist government has presented its first budget promising several tax cuts, more tax compliance and the collection of tax arrears in a bid to spur the economy that was devastated by last year's coup.

Finance minister Ratu Jone Kubuabola delivered to Parliament last Friday a 1.1 billion Fiji dollars (US$482 million) budget for the Pacific island nation in 2002, which he said, 'is the first step to rebuilding our nation and setting us on our new direction.'

The economy is expected to grow by 1.5 per cent this year and growth for 2002 is projected to increase to 3.5 per cent. Despite the socio-political effect of the coup and the current economic slowdown, Kubuabola anticipated that Fiji's economy will pick up fairly quickly via the tourism sector.

'The tourism sector is expected to lead economic growth next year ... the performance of our tourism sector is commendable given the devastating impact on travel of the terrorist attacks on the US ... government's assistance will allow the tourist industry to play a lead role in our economic recovery,' said the finance minister.

Entitled 'Building Confidence for Sustained Growth,' the budget included a revenue policy in which Kubuabola pledged to provide the business community as well individual taxpayers with 'continuity and certainty'. He admitted that there is substantial room for improvement in the areas of tax compliance and collection of arrears and in strengthening compliance. The government aims to collect an extra $40 million and plans to collect $50 million out of expected arrears of about $130 million in 2002.

Under the budget proposals corporate and personal income taxes will be cut from 34 per cent to 32 per cent. The definition of capital assets under the 40 per cent investment allowance will exclude land, and taxes on the sale of land by non-residents, who purchased for the sole purpose of investment, will be abolished.

Kubuabola pointed out that because the last review of the Income Tax Act was in 1985, the government will be considering a consolidation of the Act in the near future.

Changes to customs and excise duties include duty free entry of computers and accessories; fiscal duty on cigarettes and alcohol to be increased by 5 per cent; and excise rates for cigarettes and alcohol to be raised by 3-5 per cent.

The finance minister also announced the relaxation of exchange controls from the beginning of next year which include additional provisions for offshore investments by non-bank financial institutions. 'The relaxation of exchange control is another positive sign that we are confident about the sustainability of our level of foreign exchange reserves and the future of our economy,' said Kubuabola.

The text of the finance minister's budget speech can be found on the Fiji government's website at: http://www.fiji.gov.fj/speeches_features/S2001_11/Budget.pdf