VAT has Increased to 15%

Kevin J. Barr

This  short article, and an earlier one by Fr Barr on his assessment of the 2011 Budget on the poor, was submitted to two Fiji newspapers. Both chose not to published them.  Whether this was due to direct or self-censorship is beside the point. There is a need for public discussion on such issues.

Value Added Tax (or VAT) was first introduced into Fiji in July 1992 at the rate of 10%.  It later increased to 12.5% and, as from 1st January 2011, to 15%.

It is an easy tax for a government to introduce and administer however the principle on which it is based is unjust. This is so because, while direct taxes (such as income tax and capital gains tax)) are geared to the individual’s income, profit or wealth and are based on their ability to pay, VAT is levied on goods and services for everyone regardless of the individual’s ability to pay.

All economists recognise that, being a regressive tax (as opposed to a progressive tax), VAT worsens the conditions of the poorer members of society and causes greater inequality in society.

In those countries like Australia and New Zealand which have in place a proper social welfare system to cover all those in need and also have an adequate just wage for its workers, the effects of VAT are not so serious.  However, in countries like Fiji where we have a very inadequate social welfare system and 60% of our workers in full-time employment earn wages below the poverty line, the effects of VAT are serious. As many developing countries have found out, VAT has deepened their levels of poverty and increased inequality and so become one of the structural causes of increased poverty.

True! In Fiji we have exempted some basic food items (and temporarily some educational items).  That is good but it is hardly enough to off-set the overall effects of a VAT increase on the poorer section of our population where two thirds are either living below the poverty line or not far above it.

As with previous VAT increases (and the recent devaluation of our dollar) prices of food in the markets usually increase dramatically.  After devaluation, bundles of cabbage which were $1 are now $2, bananas which were $3 are now $5 - $10, dalo, tomatoes, cassava etc have all increased and will probably increase again in the New Year.  Other costs have also risen yet, for most, wages have not increased.

VAT increases on everyone often mean that various taxes which affect the business sector can be decreased and so we “encourage” investors and the business community.

The legendary Robin Hood stole from the rich to help the poor.  However the modern day Robin Hoods in the World Bank, the IMF and the ADB are trying to convince us that, if we really want to help the poor in the long term, we should steal from the poor in order to encourage the rich.  When they are sufficiently encouraged, poverty will suddenly disappear.  We have had sufficient dissenters from the World Bank to realise that this is just not true.

In 2007 our present government refused to implement the VAT increase proposed by the Qarase government because of its effects on the large number of poor and low-paid people in the country.  It gained popularity for its concern for the ordinary people. Yet now the very government which opposed the increase because of its effect on the poor has now brought in the increase.

How can social development be advanced by policies for economic growth which burden the poor, encourage unjust wages and increase inequality?  Are we still really committed to the Millennium Development Goals and the People’s Charter?

Kevin J. Barr

Editor Note:  I suspect Government's changed position is due to IMF influence and the need to convince the business community and possible investors that it is "business friendly."