FHTA Tourism Talanoa: Leveraging Tax Incentives to Revitalize Tourism in Fiji

FHTA, 15 June 2023 –?Many people imagine coming to an island in Fiji, with waves gently lapping the shore and surrounded by the breathtaking beauty of orange and pink-hued sunset skies.

For thousands of visitors, this experience is usually a lifelong dream of visiting this island paradise, and for many others, this is an annual pilgrimage to get some well-deserved R&R with the family, before heading back home to work hard for another year so they can do it all again.

Whether visiting for the first, time or returning after a few years of enforced shutdowns, they have been critical for the successful revival of Fiji’s tourism sector, which had been so very deeply impacted by the COVID-19 pandemic, as were many countries like ours that rely so heavily on the freedom of movement that tourism is built on.

The COVID-19 pandemic dealt a severe blow to Fiji’s tourism industry that sent it crashing quietly with parked aircraft fleets, darkened airports and silent resorts eventually resulting in economic downturns and significant revenue losses through its multiplier effect throughout the country.

19 months on, and with record bookings holding the successful reopening trends in place for what appears to be another 6 months of high demand; it is time to consider what the upcoming National Budget might have in store for the industry that showed it could come back strongly with the right supportive mechanisms in place to get from zero to hero.

The Fiscal Review Committee has come up with recommendations to the Government ahead of the National Budget Announcement in the next week, that recognises that along with the dire need to be more fiscally prudent, we must generate more revenue for critically needed investments in infrastructure and improvements in health services and water and sanitation. From the tourism industry’s perspective, that makes sense as we believe the historically poor new investments in tourism have been held up by exactly these challenges.

We agree that impediments to economic growth must be removed, whether these are complicated processes for investments or restrictive business environments. Many of these challenges have been discussed as unnecessary obstructions to the creation of more businesses, the further development of various industries other than tourism, and more job opportunities – and therefore more opportunities for tax collection via VAT as the biggest possible contributor to tax revenue, amongst a host of other regulatory processes that collect revenue.

One of the committee’s key recommendations is a gradual return to the $200 per person departure tax by April 2025.

An increase that would return it to 2019 levels, but considered a necessary step to boost government revenue and if heeded, certainly the recommended incremental increase would be well prepared for.

Consultations with the industry could assist to decide how a portion of the departure tax revenue can be used to build tourism infrastructure and support development in rural areas. By harnessing local resources like waterfalls, caves, and rivers to create unique experiences, utilize local skills and develop community initiatives, these can be part of vast opportunities for Fiji to increase its experience and activity options for visitors while delivering more targeted inclusivity where it is needed in our rural and maritime areas.

This approach maximizes the economic and social benefits derived from tourism-directed capital expenditure.

Moreover, the revenue generated can be directed towards promoting eco-friendly tourism, encouraging delicious “farm-to-table” food options, and developing local products that introduce and celebrates local cuisine for our international visitors.

The committee recognizes the importance of fairness and clarity in taxation. They recommend increasing the Fringe Benefits Tax FBT rate to 25% to align it with the corporate tax rate, while also emphasizing the need to review and update FBT guidelines in consultation with stakeholders, including the tourism industry.

This way, the Fiji Revenue and Customs Services (FRCS) can ensure that tax calculations for employers are fair and straightforward while minimizing unnecessary burdens on businesses.

Tax incentives and exemptions have played a significant role in attracting investments, promoting business activities, and creating employment opportunities. The committee acknowledges this and suggests retaining most existing incentives and exemptions – something we have advocated strongly for to continue our current momentum and grow the room inventory to meet the higher demand Fiji is experiencing.

They also wisely suggest reviewing them to eliminate any gaps or loopholes caused by poor drafting.

Incentives for various sectors such as hotels and tourism, information and communication technology (ICT), agriculture and agro-processing, manufacturing, medical and healthcare, construction, and recycling have been recommended to be maintained. This way, we encourage these sectors to continue their current growth trajectories while providing a level playing field for all local businesses.

The committee brings attention to historical variations in VAT rates and the additional turnover tax on prescribed services, especially those related to tourism and professional sectors.

To maintain a steady revenue stream and align with the industry’s contribution to Fiji’s economy, the committee recommends continuing to apply VAT at the existing rate of 15 percent to prescribed services. It may not be widely appreciated but tourism businesses do not wish to return to 3 different taxes that total 25 percent, each with a different tax application rule (STT, VAT & ECAL). There is therefore a wider acceptance for a single VAT rate and one that is not just tourism specific but applied widely.

Additionally, exemptions for transit passengers and children under 12 should be retained to make transit stays more convenient and reduce family travel expenses.

FHTA has also supported the National Tourism Office’s (Tourism Fiji) submission for a more substantive budget than what they have had to work within the last 3 years, that more realistically considers the global competitive reach Fiji must now achieve to bring home the investments through phenomenal branding, and the visitor spend and significant return we need through tapping into the right markets.

Markets are feeling the economic pinch of increasing inflation and tightening spending. Hence marketing must be skilful, effective and impactful.

Many of Fiji’s visitors from our key markets have been “returnees” or “generational”; having come to Fiji since they were children or since first visiting while on their honeymoons. They have witnessed first-hand the incredible changes that have taken place in the decades they have been travelling diligently to our islands.

The tourism industry has recognised very early the need to stay on top of changing demands, travel trends and competitor successes or failures and has used these to build back better each time, becoming a catalyst for economic growth, empowering local communities, and making the preservation of our beautiful environments an important element of industry practice. While we can continue to create more unforgettable memories for our visitors, we know we can also contribute to a more sustainable future for Fiji’s tourism industry if we can continue to build on the current momentum that has been created from the supportive frameworks provided to revive the industry some 19 months ago.

The journey to continue to revitalize and build Fiji’s tourism industry is filled with hope right now and the promise of more sustainable growth.

If some of the key recommendations by the Fiscal Review Committee are taken up by the Government, then Fiji is well on its way to fully restoring its vibrant tourism sector, empowering and creating even more of the required supply chains the industry inevitably spawns, attracting visitors from new markets as well as our current ones, and providing the ensuing economic opportunities for local communities these initiatives invariably drive.

We are under no illusions about how much work there is to be done to get there, after all, it was this understanding and the intensive work we put in that got us this far post-reopening, but we are just as ready now to put our collective shoulders to the wheel to ensure Fiji continues to turn the right way.

Fantasha Lockington – CEO,?FHTA? (Published in the Fiji Times on 15 June 2023)