REPORT 2013

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%