Finance Minister Ayaz Sayed-Khaiyum has taken some bold initiatives in delivering his Annual Budget to Parliament in Suva on June 7, 2019, the most of which were in tax incentives to stimulate the economy and attract local and foreign investment.
Fiji’s Budget for the fiscal year 2019-2020 showed a reduction of F$ 1.8 billion to F$ 3.8 billion, down from F$ 4.6 billion in last year’s projections.
Mr Sayed-Khaiyum told Parliament that he was driven by five factors in preparing this year’s Budget, including implications of an uncertain global economy, employment and entrepreneurial opportunities to young Fijians, encouraging innovation and improving technology; environmental protection and strengthening law and order.
“We expect the Gross Domestic Product (GDP) to grow to F$ 12.7 billion this year, making for ten straight years of growth,” he said.
In Fijian terms, foreign reserves, standing at $ 1.92 billion resonates a sound economy, equating to more than four months coverage of retained imports of goods and non-factor services. With inflation at 2.1%, Mr Sayed-Khaiyum claimed responsible financial management.
Without giving details, he said that his government was reviewing the Foreign Direct Investment Act to encourage greater foreign investment and reforming State-Owned and Public Enterprises to become more profitable, efficient and customer-oriented.
A week before presenting Budget 2019, Mr Sayed Khaiyum launched the ‘Personal property Securities Registry,’ to enable Fijians to use their assets as collateral to secure loans.
In actual terms, access to finance has become easier, with cost of borrowing lower than before.
No new taxes or tax increases have been announced.
“We are also conducting a review of the Financial Management Act (FMA) 2004 to make some key changes that meet the high expectations of transparency and accountability in the modern economy. Every year, before the Budget announcement, the government must table a broad fiscal framework that sets the stage for budgetary preparations, thereby building accountability and adherence to fiscal projections,” he said.
Reintroduction of Export Income Deduction with retrospective application from 2018 and maintained for three years at the rate of 50%. The Scheme will expire next year.
The threshold to qualify for 25% investment allowance under the Income Tax (Renovation of Building Incentive) Regulation reduced from F$ 1 million to F$ 250,000. The incentive will be extended to other buildings apart from those in towns and cities but will only be available to commercial buildings.
Audio Visual Incentives
The Income Tax (Audio Visual Incentives) Regulation 2016 will be amended with the following changes: The film tax rebate will be increased from 47% to 75% and will be based on the expenditure incurred in Fiji and paid to Fiji Resident companies for goods and services; The maximum rebate payable per approved final certificate will not be more than F$ 15 million; A 200% tax deduction will be available to companies investing in camera and other filming equipment for audio visual productions. Income tax holiday to companies setting up production facilities including equipment, cameras, editing and postproduction studios.
Income tax exemption for seven years if capital investments is more than $2 million.
Import duty exemption on raw materials, plant, machinery and equipment (including spare parts) required for the establishment of the business.
Tax exemption on interest earned from Government, State-Owned Entities and Statutory Authorities financial instruments (bonds, treasury bills and promissory notes) by individuals and private entities excluding financial institutions.
Income Tax (Residential Housing Development Package) Regulations 2016 will be amended to provide clarification on a ceiling on the sale price of residential housing so that it is affordable to potential average Fijian home buyers.
The incentive will only be available with the following condition to a multi-storey development: Each storey to have at least 15% of the units below the price ceiling of $300,000. This requirement only applies to the first five storeys of the development.
The incentive will also be available for a ground level multi-unit housing developments.
The following incentives will also be available (a) Income tax exemption on developer profits for the entire project (b) Import duty exemption on the importation of capital equipment, plant and machinery.
Climate Change Challenges
Fiji has been a strong advocate of environmental protection and Prime Minister Josaia Voreqe Bainimarama has championed the world on Climate Change.
The seriousness with which Fiji has addressed this issue was indicated in Budget 2019.
“Fiji has led a concerted global campaign to make international climate finance accessible, not on the basis of the size of a nation’s economy, but on the basis of vulnerability to climate impacts. Essentially, this means, Fiji can now access over F$ 55 million a year annually at zero interest rate, with an extended repayment term of 40 years,” he said.
Prime Minister Josaia Voreqe Bainimarama with National Economy Minister Aiyaz Sayed-Khaiyum in Fijian Parliament after Budget on June 7, 2019 (Picture by Ronald Kumar for Fiji Sun)