REPORT 2013

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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:
9 • The VFD on which duties were applied to grew at a rate of 23.5%; however the growth on duty collected was only 2.4%. This reflects a large chunk of imports being imported under the zero band categories. • Duty collections from the 5%, 15% and specific bands declined between 2012 and 2013. Tax on Domestic Production The excise duty on the production of cigarettes, beers, sprits and alcohols is one of the main taxes imposed on domestic production. Following the increased in the excise duties by 10%, the excise duty revenue has increased from $34.8m in 2012 to $38.8m in 2013 for the first 6 months period. Tax on Natural Resources The Water Resource Tax is one of the taxes imposed on the extraction on the underground water. The revenue collected from this tax as at June 2013 was $13.5m against $13.1m collected last year. Accumulated fish levy collection as at June was $0.2m, lower by 78.1% over last year’s level and is below the cumulative forecast by $0.4m. Visitor Arrivals and Tourist VAT Refund Scheme (TVRS) Visitor arrivals cumulative to June increased by 1.4% against the same period last year while departures had increased by 27.0%. Cumulative to June, Departure tax collections amounted to $43.1m, higher by 17.3% than that recorded last year and were above the cumulative forecast by $0.2m. Cumulative to 30 June, total TVRS refunds processed amounted to $2.0m, higher by 33.1% than that processed in the same period last year. Tax Arrears and Collection Tax arrears as at June 2013 totaled $89.4m, lower by 12.4% compared to that recorded in the previous month. Accumulated tax arrears as at 30 June 2013 was also lower by 29.4% compared to the comparable period last year. Cumulative tax arrears collected as at June 2013 totaled $34.0m, higher by 72.1% than that collected in the same period last year and exceeded the targeted level by $9.0m. A new initiative introduced in Debt Management in 2013 is the Current Debt Call Center, whereby two to three telephone call reminders are made to debtors before due dates, reminding them for full settlement of tax debt or engaging into timeto-pay arrangements to effectively settle their liabilities. This concept is proving beneficial for FRCA in its effort to prevent debt turning arrears and minimising the possibility of these debts falling into the aged debt category. This new initiative has resulted in cash collection of $11,856,066.55 from current debts which are debts not yet due falling between one to thirty days. Outstanding VAT Refunds The total outstanding VAT refunds as at 30 June 2013 was $58.6m. Of this balance, 13.2% is for those in the periods 1994-2009; 24.0% for 2010 to 2012; and 62.8% for 2013. Total outstanding VAT refunds at the end of June 2013 increased by 15.0% compared to that recorded in the month of May and increased by 169.6% when compared against the same period last year. Staff Costs The Base salary cost for 810 staff was around $19.6 million or $21.4 million including 8% FNPF and 1% FNU Levy. The majority 81.3% is paid for operations (Tax (44.1%) and Customs (37.2%) while 18.7% is for administration Corporate support functions. Unutilized annual leave liability was around 55.9% ($1.0m) out of the $1.8m liability for the year. Leave Schedules and contractual conditions for maximum 6 days carried forward annual leave will ensure a minimal carry forward liability into the following year. Housing Bond Recovery With the change in the housing allowance to a cash-up arrangement in 2012, outstanding housing loan bonds with Landlords are being pursued through the Small Claims Tribunal. A total of 70 cases for recovery of $32,660 were lodged and 38 cases closed with a recovery of $16,438 . Training Costs (Overseas and Local) Overall cost of training remained low at $31,663 as the majority of staff training are partially or fully funded and sponsored training. The Customer Service Centre at Nasese, Suva.
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REPORT 2013

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