A taste of paradise

sweeteners added

By Rupak Saha

“A paradise of sun drenched islands what* nicer than such a physical location for your enterprise?” asks the Fiji Trade and Investment Board in their brochure An Investor’s Guide to Fiji. However, for a hard-nosed investor a “tropical para dise” may not be attractive enough, so Fiji has offered some economic candies for overseas entrepreneurs.

A limited domestic market and a substantial annual import bill has forced Fiji to gear its economy towards con tinued export growth. The Government has realised that sale of sugar to restricted overseas markets sheltered by trade bloc memberships will not by itself sustain an effective export growth, so it has pro vided a package of tax incentives to encourage exports of local value added products and services.

Tax Free Factory (TFF)/Tax Free Zone (TFZ) Scheme In the forefront of the Government incentives has been the TFF/TFZ

scheme established to stimulate the country . s . Wu<; added „ d . ucts. The types of enterprises which are considered x f or TFF/TFZ status are: manufacturi . mixi ' g> blending and narka£rintr assem h lv - and certain exoort- P J>’ ional se^ices P P Such enterprises exporting 95 per cent or more of their annual production can be designated as a TFF. The Govern ment also is in the process of designating certain areas in Fiji as Tax Free Zones (TFZ) where qualifying industries would be established. Currently, the incentives available to TFF/TFZ enterprises are: ® Exemption from income tax for a period of 13 years, ® Waiver of import duties and excise taxes on certain materials and equip r Exem ption from withholding tax on van ° us forms of remittances to non ' residents ... 9 EaSe ° f re P atnatlon of capital and f . . . • Relaxation of immigration regu lations for necessary employment of

expatriates.

To provide the resultant downstream industries with a necessary boost, any enterprise providing 95 per cent or more of its output to a TFF also may be designated as a TFF.

Tax relief on exports To encourage exporters who do not qualify for TFF status, the following income tax concession is granted to

resident companies exporting certain

approved products (the products which may be approved for this purpose range from manufacturing to agricultural pro cessing and also include produce of commercial fishing): Where the local value added of such a

product is:

• at least 30 per cent, a rebate of one half of the tax on the export profits is

granted;

• between 40 per cent and 50 per cent, a rebate of three quarters of the tax on the export profits is granted; • more than 50 per cent, the full amount of tax on the export profits is exempt from tax.

Specific industry concessions Tourism: Substantial efforts have expanded the country’s export base, but the traditional foreign exchange earners like sugar and tourism still lead the way as contributors to the country’s foreign exchange coffers. Tourism recently took the top spot as the country’s major

foreign exchange earner, surpassing sug

ar exports. To attract further investment in tourism, 55 per cent of capital expenditure incurred on construction or extension of a hotel, or on a tourist vessel or approved tourism support project, is allowed as a tax-deductible expense above the normal depreciation allow ance. This can make a hotel’s formative years tax-free.

Mining: Fiji has gold deposits in Vatukoula and gold mining is one of the major industries, along with tourism, sugar and garments. Gold production was 4221 kgs in 1989, as against 4272 kgs in 1988. To encourage further mineral exploration, mining ventures are grant ed accelerated depreciation on capital

expenditure on acquisition and develop

ment of mines, or they can offset prospecting expenditure against other income. The Minister of Finance may exempt the company’s income from tax or reduce the rate if he deems it

economically beneficial.

Others: In the agricultural sector, a tax holiday for five years is available to companies in specified agricultural ac tivities. Losses incurred by a group company in some prescribed agricul tural ventures may be offset against profits derived by other companies in the same group.

Under the “Scheme for Pioneer Enterprises”, a new company con

sidered important to economic develop ment may be granted, on application, a restricted tax exemption limited to a percentage of its total fixed capital investment (the percentage depends on the numbers of people it employs).

Apart from income tax exemptions or reductions, accelerated write-offs (nor mally over five years) of capital expen ditures are permitted in certain cases e.g. when expenditure is aimed at economising fuel consumption and pro moting alternative sources of energy.

Other concessions In addition to direct tax concessions, import tariff concessions are provided in appropriate instances through duty drawbacks, exemptions and reductions.

On appropriate payments of withhold ing taxes, profits can be repatriated overseas subject to exchange control approval from the Reserve Bank of Fiji.

The tax concessions are designed to promote Fiji as a viable investment alternative to Asia and other traditional exporters. To achieve this, the Govern ment of the country is increasingly shifting towards a market economy, removing import licensing and other protectionist devices. In the process it hopes to attract more foreign investment and accelerate Fiji’s progress in the industrial development race. □ Rupak Saha is Taxation Manager for Price Waterhouse chartered accountants in Suva, Fiji