REPORT 2013

8 FRCA SIX MONTHS REPORT 2013
Drivers of Current Revenue Growth
The current revenue growth is caused by several factors such
as economic activity, sound revenue policies, compliance and
the various FRCA reforms. The 2013 revenue forecast was
based on:
• a GDP Growth rate of 2.7 percent;
• compliance collection of $70.0m
• debt collection of $50.0m
• 2013 revenue policy impact of $34.1m (PAYE allowances
• removal gain of $11.2m, Fiscal Duty changes of $6m,
Excise Duty on Cigarettes of $7.5m, Stamp Duty changes
gain of $9.4m)
The 2012 tax cuts had a wider impact on revenue collections
due to its effect on consumption being felt in 2013 and
perhaps to be felt in some parts of 2014 until a stabilization
point is reached where a normal revenue growth rate will
be seen. The current revenue growth is mainly driven by
high consumption arising from the 2012 revenue policy to
cut taxes. It is clear that the multiplier effect of tax cuts is
boosting current revenue growth.
High Consumption
The expansionary fiscal policy of 2012 in the form of tax cuts
of up to $53.1m has led to an injection of the same amount
in the household sector as increased disposable income.
FRCA has estimated that the tax cut will over time lead to an
economic expansion of $212.0m and the aggregate spending
in the economy will increase by about $265.0m. This translates
into extra VAT revenue of about $35.0m and other revenues
of about the same amount. The overall tax revenues created
will be about $70.0m, which will be collected over a period
of time depending on consumers’ spending patterns. Currently,
increased domestic VAT and Fiscal duty has reflected some of
the multiplier effect revenue.
Improved Compliance and Debt Collection
FRCA’s overall compliance has shown signs of improvement.
The level of tax arrears are decreasing year by year over the
last 3 years and based on the current trend it is expected that
the tax arrears will be the lowest this year when compared to
last 10 years.
Improved Revenue through FRCA Reforms
It can also be highlighted that FRCA is currently going through
various reforms, which has lead the operational efficiencies
leading to improved collections. The current PAYE as a Final
Tax system for example has led to deployment of staff towards
revenue collection works which has assisted in revenue
collections.
Tax on Income
The PAYE and Corporate taxes are the major source of the
income tax revenue. Cumulative to June, it is noted that the
Corporate Tax collections exceeded the forecast by $2.6m.
From 2012 a new system was introduced for Corporate Tax
collections to ensure 90% of taxes are accounted for in the
same income year. In 2013, this rule was changed to 100%. FRCA
has also noted improved compliance in the administration of
new system due to high penalty regime. The PAYE revenue
grew by over 1.6% than that recorded last year. The growth in
PAYE reflects the revenue gain from the removal of personal
allowances and new taxpayers being registered due to
growth in the economy. On average, monthly collections have
increased by $1.1m when compared to 2012 figures. If this
trend in collections continues then at the end of the year, we
would expect PAYE to be higher than that recorded in 2012.
The Capital Gains tax was over the forecast by $1.7m and is
consistent with economic growth in the real estate sector. The
Social Responsibility Tax collected, as at June was $5.2m as
compared to $4.7m last year.
Stamp Duty
Consistent with the claims of increased consumption, stamp
duty payments also reflect growing activity in the real estate
sector. Property related transactions accounted for 45.4% of
stamp duty collection in the month of June. This trend has been
een from earlier months and correlates to the accelerated
growth on commercial bank lending. Consumers are currently
enjoying the attractive and low interest rates offered by banks
on home loans. In addition to this, motor vehicle loan rates
have also been slashed with increased demand reflective in
bill of sale transactions. Following the review and gazettal of
new rates, the Stamp Duty revenue has increased by 97.9%
from $9.0m to $17.8m.
Fringe Benefit Tax
Owing to improved compliance, the number of taxpayers/
employers making a FBT return has increased leading to
186.4% increase in FBT collections from $2.9m to $8.2m
between 2012 and 2013 for the first 6 months period.
Tax on Consumption
VAT, Service Turnover Tax (STT) and new levies are essentially
the main consumption taxes in Fiji. VAT collections are very
buoyant as explained earlier with growth close to 20.0%. The
STT collected as at June was $20.9m, which was about $2.0m
higher than that recorded in the same period last year. The
Departure Tax revenue has exceeded the forecast by $8.0m
with a collection of $43.1m as at June 2013.
Trade Taxes
The continuous rise in the consumption level has also
prompted an increase in demand for imports leading to more
trade tax collections. The fiscal duty collection of $138.1m
has exceeded the forecast by $8.8m and has been 20.5% over
than that of 2012 for the first 6 months period. It is clear
that the demand for both the investment and consumption
goods has increased. Notably, the imports of motor vehicles
have been more than double the amount seen last year with
a growth of 60.9%, leading to a revenue collection of $13.3m.
Although appreciation of the Fiji dollar against the Japanese
Yen over the last few months must have enticed more imports,
it can be highlighted that such demand has been driven by
increased demand for motor vehicles following easier credit
terms offered by financial institutions. In terms of investment
goods, the importations of capital plant and machinery has
increased and these have also been due to low tariff and the
incentive regime offered to the manufacturing sector such as
accelerated deprecation provisions and zero fiscal duty.
Duty Foregone
The total duty foregone as at 30 June totaled $154.7m,
recording a decline of $68.1m or 85.9% compared to June
2012. Concessions given under Code 232 of the Customs Tariff
Act consists of the current standing list of section 10 which is
announced in the budget every year, concessions given for tax
free region projects, trade agreements and ad-hoc requests. As
of June 2013 the revenue foregone from ad-hoc concessions
was $3.3m, a growth of 70.8% compared to the same period
last year. Most of the goods that were granted approval for
ad-hoc concessions were for machinery and mechanical
appliances.
Fiscal Duty by Duty Bands
Cumulative to June 2013, all duty bands, recorded a growth in
erms of imported value compared to the same period in 2012.
The following are the observations on Fiscal duty collections: