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Fijian Elections To Center On Parties' VAT Policies

by Mary Swire,, Hong Kong

11 August 2014

Ahead of elections scheduled for September 30 to re-establish democratic rule, Fijian political parties are beginning to battle it out on tax policy, and value-added tax – accounting for a large portion of the territory's tax receipts – is becoming a key subject of debate.

Former Prime Minister Laisenia Qarase was ousted in a military coup in December 2006, and a state of emergency was declared by his successor Frank Bainimarama, who is now Fiji's interim Prime Minister. On April 9, 2009, the Fiji High Court found that Qarase's dismissal and Bainimarama's appointment had been illegal. The international community has called for a return to democratic rule, and elections are now scheduled to be held on September 30, 2014.

By May 2013, four opposition political parties had registered under the territory's new constitution: SODELPA, the Fiji Labour Party, the People's Democratic Party, and the National Federation Party. A total of seven political parties are now registered, including the Fiji First Party of interim Prime Minister Bainimarama.

The National Federation Party is campaigning for a cut to the value-added tax rate to ten percent in its election manifesto, and has recently responded to criticism from Bainimarama's Fiji First Party. The Fiji First Party hiked the value-added tax rate from 12.5 percent to 15 percent in 2011.

Putting forward its VAT plans, the NFP argued: "Our poor economic performance has resulted in rising poverty, rising unemployment, and frustrated workers with low wages. The biggest killer for our people has been rising prices of food and utilities. When it took over power, this [interim] Government promised to reduce VAT from 12.5 percent to 10 percent. Instead it raised it to 15 percent... Prices have increased by 45.3 percent since 2006. Food prices went up by 60 percent, heating and lighting prices also by 60 percent and transport by 51 percent... In Government the NFP will reduce VAT from 15 percent to 10 percent immediately, providing immediate relief on the growing costs of essential food items. We will review all import duties on important food items to reduce price[s] further."

Responding to the First People's Party's criticism of its proposals, the NFP has said that cutting VAT by 5 percent will not reduce VAT revenue by 33 percent, contending that consumption will rise. Referencing revenue growth statistics between 2012-2014, the party said: "It is evident that VAT revenue is not totally dependent on the VAT rate but the rate of economic activity as well."

Wrangling between the two parties has concerned whether Fiji's VAT regime and in particular the reduced rates are, when taken as a whole, beneficial to low earners or affluent taxpayers, and whether a cut in the VAT rate will prompt a reduction in government spending on basic infrastructure.

Other political parties have also released their manifestos in recent days. SODELPA has pledged to allocate FJD50m (USD27.2m) annually to subsidize the prices of an approved list of VAT-free basic food items. Labour has said it will look to reduce the cost of doing business in Fiji, in particular by reducing electricity and telecoms charges. The party has said it will review all taxes on goods and services that are levied in addition to VAT, and will add to the list of basic foodstuffs, medicines, and consumer items that are zero rated. Meanwhile, the People's Democratic Party has released a tax-lite manifesto, which includes no specific VAT proposals other than a general review of the tax system and of charges.

Fiji is heavily reliant on VAT revenues, accounting for 39 percent of the tax base in 2012.

TAGS: VAT rates | tax | investment | business | value added tax (VAT) | law | accounting | Fiji | trade | telecoms | services

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