Government forecasts reveal that the increase of Value Added Tax to 15 per cent, without the zero ratings on the essential food items, it has the potential to collect $630 million in revenue for the next financial year.
VAT currently is at 10 per cent.
Minister of Finance Professor Biman Prasad said this were the recommendations by the Fiscal Review Committee to the Government.
Prof Prasad says that for every one per cent increase in VAT, there is potentially a $100 million in revenue.
He said the setback would be if Government took away the zero-ratings on the essential items, the revenue loss would be significant.
“At the rate of 12.5 per cent, this would reduce the additional revenue by half –- about $185 million. At 15 per cent, this would be a reduction of about $220 million in the revenue collected.” he said
The Deputy Prime Minister said this is something that the Government is considering very carefully and would make the decision soon.
Prof Prasad said this is not necessarily the most efficient way to collect tax and according to World Bank and the Fiscal Review Committee report that zero-rating of essential items benefits the rich people more than it does the poor.
“The Government also understands the concerns of ordinary people about the price of food and essential items. We understand that if we unified the VAT rate, even with additional targeted assistance, there would be severe impacts on thousands of our people. This is not the time to do this. We may look at this measure in the future, but we believe that we must first grow the economy and try to improve incomes overall before we can take this step,” he added.
The Minister for Finance will reveal Government’s plan this Friday as it announces the 2023-2024 National Budget in Parliament.
