REPORT 2013

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6 FRCA SIX MONTHS REPORT 2013 Balance Scorecard (BSC) FRCA’s performance targets are based on the Balance Scorecard which is a measurement-based strategic management system that aligns business activities to Key Performance Indicators. The Scorecard concept was developed by Dr. Robert Kaplan (Harvard Business School) and David Norton and enhances conventional financial measures by setting targets of performance in 3 key nonfinancial areas i.e. (i) our relationship with our customers, (ii) our internal processes and (iii) our learning and growth. Consequently, it relies on: translating our Vision so our targets are realistic; communicating and linking the Scorecard to all staff so everyone understands how their performance supports the overall strategy; planning our business so our budget supports our goals and feedback and learning. A Working Group was established to identify FRCA’s 6 Critical Success Factors which are broad areas that the organisation must focus on to achieve its vision. Another 2 tiers below the CEO’s Scorecard are the Division and Individual Scorecards. To assess the bonus payments all staff are then evaluated on the: CEO’s Scorecard (1/3); Division Scorecard (1/3) and Individual Scorecard (1/3). The total score for each Scorecard will then be averaged to derive the final performance score. The Scorecard was implemented in the Authority in 2012. This Report is aligned to the 6 Critical Success Factors under the Balance Scorecard.
7 Critical Success Factor: Financial • Fiscally responsible management. • Strengthen risk management. FRCA has recorded solid revenue collections as at June 2013 with a massive positive variance over the forecast and 2012 actual. The $829.1m collection as at 30 June, 2013 has exceeded the: • Forecast by $31.8m (or 4.0% over the forecast); and • Actual collection by $88.6m (or 12.0% over last year same period). The variance over the forecast of over $31.8m has been phenomenal as such resounding performance has rarely been recorded in FRCA’s history. Cumulative collections to June in the past have never recorded a variance of such magnitude. Between 2004 and 2012, FRCA’s January to June collection has exceeded the forecast by an average of $1.9m; hence the 2013 performance was 16 times better than the average. Refer to Table 1. Table 1: Revenue Collections (January to June 2013) Tax Type Jan – Jun 2013 ($m) Actuals Jan – Jun 2013 ($m) Forecast Variance ($m) Jan – June 2012 ($m) Income Tax 181.2 186.0 (4.8) 204.8 VAT 330.5 308.0 22.5 279.1 Import Duties 199.5 191.4 8.1 161.4 Others 117.9 111.8 6.0 95.1 TOTAL 829.1 797.3 31.8 740.5 Chart 1: Cumulative Revenue Trend The current revenue trend is following the same pattern as that of the previous years as shown in the Chart 1. Despite the tax cuts of the 2012 Budget, the revenue collections in 2012 and 2013 have remained higher than that of the 2011 levels. This is evident through the steepness of the curves, with the 2012 revenue line having the steepest slope compared to the last two years. The revenue buoyancy as measured by relative change in economic growth and tax growth shows that for a percentage of economic growth in 2013, collections is multiplying faster than that recorded in 2012 (refer Table 2). For a 1% growth in GDP in 2013, the revenue is growing by over 4.4 percent. This rate is seen to be high as the normal expectation is that a 1.0% growth in GDP should lead to about 1.5% growth in tax. It can also be noted that consistent with the 2013 Budget Fiscal Framework, the tax revenue as a percentage of GDP is estimated to be 23.9% of GDP. The Tax to GDP ratio as at June is 10.7%. Another important feature of the collections is the changing revenue mix. As expected, a pattern is being established where the income tax revenue will decline as a percentage of overall tax collections and this decline will be picked up in the Value Added Tax (VAT) collections. The VAT dominance as the source of most revenue continued in 2013 and it has accounted for about 40% of total tax take relative to 38% last year. This 2% is equivalent to $51.4m. This shift in collections from Income Tax to VAT has been expected owing to reduction in the income tax rate which has increased VAT revenue through increased consumption. Refer to Chart 2. Table 2: Revenue Elasticity 2012 2013 GDP Growth 2.5 2.7 Tax Growth 9.4 12.0 Elasticity 3.8 4.4 Chart 2: Comparative Tax Mix Jan-June Income Tax, 22% January to June 2013 January to June 2013 Others, 14% VAT, 40% Income Tax, 27% Others, 13% VAT, 38% It is also noticed that there is a significant shift in the composition of revenue in terms of the factors of production following the significant tax policy reforms in 2012 involving reductions in personal and corporate tax rates. It is clear that taxes on labour income today accounts for 7% as opposed to 12.8% in 2011. The shift toward consumption as earlier commented on, has also been dramatic with an increase from 32.3% to 36.2% in 2013. This also includes the imposition of other user-pay levies. It is also noted that the revenue collection from trade has also increased from 38.1% to 40.2% in 2013 signifying large imports to support greater economic activity following tax cuts. Refer to Chart 3. Import Duties, 24% Import Duties, 22%
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REPORT 2013

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