Why Tax Holiday
Deputy Prime Minister and Minister for Finance, Biman Prasad, says the Fiji Government does not have jurisdiction in Fiji Water’s tax affairs in the United States.
The 2023-24 National Budget announcement on the exemption of corporate tax for water bottling companies and the increasing of water resource tax (WRT) has raised some eyebrows over possible loss of revenue for the Government and favouritism toward big players such as Fiji Water.
Former Prime Minister and leader of the Fiji Labour Party, Mahendra Chaudhry, has strongly called on the coalition to provide a satisfactory explanation on the seven-year tax holiday given to Fiji Water and other water bottling companies. Mr Chaudhry said an urgent and independent inquiry on why the exemption of corporate tax was granted to the foreign-owned company that recorded a profit of $63 million in 2022 from its Fiji operations. However, Mr Prasad is adamant Fiji will not lose a cent from this tax measure. He said the new tax measures allowed Fiji Water to claim tax credit overseas, in return increase their investment in Fiji.
“Fiji does not have a double tax agreement with the United States. Fiji Water’s tax affairs in the United States are not matter for the Fiji Government,” he said.
Fiji Water paid both corporate tax and WRT from 2009 until 2022. Because of its capacity to produce more than 10 million litres per month, Fiji Water was the only bottling company that paid 18 cents per litre as WRT.
The amended WRT means that Fiji Water will now pay 19.5 cents per litre to produce more than 10 million litres per month.
Other bottling companies producing less than 10 million litres per month, while being exempted from paying corporate tax, continue to pay 1 cent per litre.
However, Mr Chaudhry insists the water resource tax restructure does not generate more revenue compared with maintaining corporate tax.
Prime Minister Sitiveni Rabuka said tax exemptions were not new. He said there were blanket tax exemptions in a time where Fiji was trying to encourage overseas investors into Fiji.
“There were tax holidays for nearly 13 years as they (overseas investors) set up to get their operations running,” Mr Rabuka said. Mr Rabuka’s Soqosoqo Vakavulewa ni Taukei Government, in 1995, granted Fiji Water a 13-year tax exemption. This was not renewed under Voreqe Bainimarama’s administration.
In an interview, Mr Rabuka said he did not know the background of why corporate tax exemption was granted for Fiji Water.
“But we cannot just abruptly bring it to them without looking at the whole question and finding out why the exemption was given and weighing the advantages to the company and the disadvantages to them. As well as the advantages Government has over the years accrued from the operations of Fiji water,” he said. .
HOW DOES FIJI BENEFIT
Mr Prasad said based on the volume of bottled water produced by all bottled water producers last year, the Government expects to see its water resource tax revenue to increase.
Mr Prasad had earlier indicated that WRT was projected to increase from $73 million to $91 million – an increase of almost 25 per cent.
“The first thing to recognise is that Fiji’s water resource tax is the highest in the world – more than double of that of France, which is the next highest.
“Should we have such a high water tax? This earns us good money, but it is a disincentive to new entrant in the bottled water industry, who might prefer to go to a country with a lower water tax.”
He adds company tax paid by bottled water producers in 2022-2023 was relatively low, although most of the producers were profitable.
“The law for many years allowed bottling companies to take advantage of the Export Income Deduction (EID) given to all exporters (in
every industry) which lowers the corporate tax they must pay,” Mr Prasad said.
He said corporate tax given away by the tax law changes was small, compared to the WRT collected by Government.
“Over time, as the volume of water produced increases, the gap will widen further – revenue gains from this measure will increase.”
The coalition indicated the tax changes would increase the investment
of foreign-owned companies and provide locals the opportunity to also enter the bottled water industry.
Mr Prasad highlighted the tax changes undertaken last year were general policy changes, which supported the bottled water industry – a key exporter.
During a webinar on understanding the United States Food and Drug Administration held last year, permanent secretary for Trade,
Shaheen Ali, highlighted that Fiji’s exports to the US were valued at $482 million in 2022, the bulk ($238 million) was mineral water exports.
Fiji Water’s main export markets are the United States, Canada, Mexico, United Kingdom, and China.
Mr Prasad said Fiji Water made several investments in Fiji in different sectors.
Earlier this month, Fiji Water’s California-based parent company – The Wonderful Company – invested $140 million in expanding its production capacity by 47 per cent, improve efficiency by 10 per cent and reduce cardboard usage by 10 per cent.
This was regarded as the largest expansion in the water bottling company with a total of $300 million spent on upgrade since the company was established in 1996. At the inauguration ceremony in February, members of the media were not allowed to interview senior Fiji Water executives present at the event. Photographers were also banned from taking photographs inside the new expansion in case of duplication.
All materials were supplied by the global brand.
PARENT COMPANY
California-based $6 billion corporation, The Wonderful Company, is a food and beverage manufacturing tycoon – one of the largest in the world.
The company boasts 12 international brands.
One of the main brands of the company is Fiji Water.
Mr Prasad said for years, Fiji Water was an important investor in Fiji.