Kumar’s statement incorrect says Naidu

March 17, 2024 4:39 pm

Premila Kumar [left] [Source: Parliament of the Republic of Fiji] and Richard Naidu [Source: Munro Leys]

Fiscal Review Committee Chair, Richard Naidu says Opposition MP Premila Kumar’s statement in Parliament last week that the 2023 Fiscal Review Committee had recommended reductions in personal tax rates for high income earners is incorrect.

Naidu says it appears that Kumar has not read the Committee’s May 2023 report.

Naidu states Kumar suggests that the Committee’s recommendations on personal income tax favoured wealthy people at the expense of others.

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However, Naidu says if Kumar read the Report, she would see that its recommendations (which included an increase in corporate tax) have the opposite effect.

He clarifies that the Fiscal Review Committee is appointed by the Government but is independent.

He stresses the Government does not tell the Committee what to say and the Committee does not tell the Government what to do.

Naidu adds the Committee issued a 159-page report in May last year.

The Report made more than 100 recommendations on taxation, Government spending, social protection, cost recovery, improving economic growth and better use of Government assets.

According to Naidu the Government accepted some recommendations, rejected some and (we are told) is still considering some.

Naidu states the Committee did not recommend any reductions in personal income tax on people with high taxable incomes.

He emphasizes the Committee recommended only that the Social Responsibility Tax (SRT) be abolished and replaced with a new personal income tax bracket for individuals with high taxable incomes (mostly salaried executives, sole proprietors and people in partnerships).

This he says will be at the same marginal tax rate and will simplify the tax system without reducing the total tax paid by those individuals.

Naidu says Kumar can find these recommendations at paragraph 4.43 of the report, on page 56.

However, Naidu says the Committee also noted that both the Fiji Revenue and Customs Service (FRCS) and the International Monetary Fund (IMF) had recommended that the top rates of personal income tax come down.

This he adds was partly to do with the distortionary effects of high tax rates.

These force up top executive salaries (because top executives want to receive a certain amount of money after tax) and add to business costs, which are passed on to consumers.

Naidu says in the 2023-24 National Budget personal income tax rates on the highest incomes were slightly reduced but this was not on the recommendation of the Committee.

The Committee also noted that many business people who owned companies could receive low salaries (on low rates of tax) but receive additional income in tax-free dividends.

The Committee did not consider this situation fair or equitable.

Naidu says it means that many company owners earning high incomes can use a company structure to pay less tax.

The Committee accordingly recommended a simple tax on dividends to close this gap.

Naidu adds in his June 2023 Budget address, the Minister of Finance said that the Government would look at a dividend tax in the 2024-2025 National Budget.

He states that Kumar is welcome to contact the Committee members or the Committee secretariat to clarify these matters.